What is the strength of Brent: oil prices will "storm" for another month

Escalating trade wars and tensions between the United States and China have increased fears of a recession, leading to further declines in oil prices. The cost of raw materials on the morning of April 7 fell below $ 63 per barrel. Last week, Brent lost 10.9%. In addition, ahead of the OPEC+ production increase in May, Saudi Arabia lowered its selling prices for Asia by $2.3 per barrel. According to experts, in order to stabilize the situation, it is necessary not to reduce production, but to restore demand. The market will "storm" for another month until new trading chains are established, Izvestia's interlocutors believe. At the same time, the current situation, in their opinion, will lead to an increase in demand for Russian oil and to a reduction in discounts on it.

Why are oil prices falling?

On April 7, oil prices continued their decline, which began last week due to the introduction of import duties from other countries by the American leader Donald Trump. By 10.30 Moscow time, the cost of Brent crude oil dropped below $63 per barrel. And this is despite the fact that on April 4, losing almost 7%, they gave $65.48 per barrel of the North Sea mixture. Overall, Brent lost 10.9% last week.

According to Reuters, prices for Russian Urals crude for shipment from the ports of Primorsk, Ust-Luga and Novorossiysk have fallen to about $53 per barrel. The cost of raw materials of this grade may drop to about $50 if the decline in Brent prices continues. In this case, it will be the lowest level since March 2023.

Experts explain the bearish mood in the market by the coincidence of a number of factors at once. OPEC+'s decision to launch a planned production increase of 411,000 barrels per day in May was added to the trade wars initiated by the United States. In addition, China's State Council announced additional duties of 34% on all imports from the United States, and Saudi Arabia announced lower prices for its oil for Asian buyers over the weekend.

Thus, the cost of the Arab Light brand for Asian buyers has been reduced by $2.3, and now it is $1.2 per barrel higher than the price of a basket of Oman/Dubai varieties. In addition, prices for other varieties for the region were also lowered by $2.3, the company said in a statement. The drop in value was the most significant in more than two years and the second month in a row that Aramco lowered its prices.

Against this background, Goldman Sachs has again revised down its average annual forecasts for Brent and WTI crude oil prices in 2026, citing increased recession risks and the possibility of increased OPEC+ supplies compared to expectations. The bank lowered its forecast for the cost of Brent crude oil by $4, to $58 per barrel, and for WTI — to $55. In addition, Goldman Sachs raised its estimate of the probability of a recession in the United States from 35% to 45%.

The Kremlin, in turn, said it was closely monitoring the situation and doing everything to minimize the consequences of what was happening. According to Dmitry Peskov, the press secretary of the President of the Russian Federation, the spikes in oil prices are related to the US decision to impose import duties.

"Our economic authorities are monitoring this situation very closely and, of course, are doing and will do everything necessary to minimize the consequences of this international economic storm for our economy," he said.

Who benefits from falling oil prices

Valery Andrianov, associate Professor at the Financial University under the Government of the Russian Federation, noted that the decline in oil prices has a negative impact on the budgets of both Saudi Arabia and Russia. By the end of March, the cost of Urals raw materials in its ruble terms turned out to be about 25% lower than the benchmarks included in government calculations, and against the background of a further decline in quotations, the situation may worsen.

At the same time, according to him, the cost of oil production in Saudi Arabia and Russia remains significantly lower than in shale fields in the United States.

— For example, Rosneft has operating costs of less than $3 per barrel. However, the cost of shale production is also decreasing, but it remains at about $40 per barrel. In fact, American oil companies are comfortable with prices at at least $60 per barrel," the expert told Izvestia.

According to Dmitry Bogdanov, managing partner of the GeoKIN consulting company, the cost of production in Russia currently stands at 9-20 thousand rubles per ton, excluding the factors of extra—viscous oil or low permeability in new fields, which is about $14 - $32 per barrel.

— According to the current data, it depends on the depletion and water availability and can range from 6 thousand to 40 thousand rubles per ton ($9.7 - $64 per barrel), — the expert noted.

The cost of shale oil production in the United States has fallen to almost $40 per barrel. Such data is provided by S&P Global, speaking about the Permian basin, which provides the main growth in North America.

Ekaterina Kosareva, Managing partner of WMT Consult, recalled that at one time, when Donald Trump said that when he came to power in the United States, he would lower the cost of oil, he had in mind the price of $40.

"However, I do not think that at such prices it will be comfortable for either American oil producers or representatives of the OPEC+ alliance to do business," the expert noted.

Valery Andrianov agrees with her. In his opinion, under the current conditions, neither Saudi Arabia, Russia, nor the United States are interested in a drop in oil prices.

— The Saudis are already reducing their prices as a result of the fallen global prices, rather than provoking their decrease. And you certainly shouldn't expect any deliberate actions from Riyadh aimed at undermining the American shale industry. Firstly, attempts to wage price wars are now a priori doomed to failure — they will lead to a long—term collapse in value and significant financial losses for all parties," he added.

Secondly, Washington and Riyadh are political allies, and, apparently, during Trump's visit to the Middle East announced in May, negotiations will be held to strengthen this alliance, the expert believes. It is possible that a new long-term agreement is being prepared to replace the one concluded in 1974 and expired in the summer of 2024.

What will happen to oil prices

According to Tamara Safonova, CEO of the Independent Analytical Agency for the Oil and Gas Sector (NAANS-Media), the oil market will be "storming" for about another month until new trade supply chains are established.

— It is the reduction in global trade volumes against the background of the introduction of a new US tariff policy and, as a result, a decrease in global transportation that is the trigger for a decrease in fuel demand. The withdrawal from voluntary production restrictions by OPEC+ countries and the acceleration of production growth in May to 411 thousand barrels per day was a priori recouped by the market. In this regard, oil investors on stock exchanges this week will focus more on the actions of countries in response to US trade duties, a physical change in global trade turnover and the reorganization of supply chains, Tamara Safonova believes.

Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation, agrees with this opinion. According to him, against the background of the escalation of trade wars, prices continue to decline, and subsequently trade will decrease.

"This means that transportation will decrease, and consequently less oil will be needed," he added.

According to Tamara Safonova, the market imbalance may amount to about 1 million barrels per day. At the same time, according to her, the current situation is not like the fuel crisis that was during the pandemic. In 2020, the price of oil dropped to $25 per barrel.

— I think prices may go below $60 per barrel. And here we will probably wait for some events that will still allow the cost to rebound and go up. Firstly, it may be a precedent for an agreement between the United States and some other country, in particular, someone from Asia. For example, Vietnam suggests that the United States either reduce duties to some kind of the same level, or cancel them altogether," Igor Yushkov added.

According to him, if the low price situation lasts for at least a month, we will see a reduction in production in the United States, which will also begin to balance the market and push the price up.

In addition, according to Valery Andrianov, OPEC+'s task now is "not to rock the boat" by increasing production, not to seek to redistribute market shares, but to get out of the price crisis with the least losses.

— Therefore, I do not exclude that the restoration of production within the framework of the alliance will be postponed, contrary to the previously made decision. No wonder OPEC+ has stated that it will continue to monitor the situation and respond flexibly to it — now is the time for such a reaction, the expert believes.

The Ministry of Energy of the Russian Federation and OPEC did not respond to requests from Izvestia.

According to Tamara Safonova, the current situation, in which trade relations are being reconfigured, in turn may lead to an increase in demand for Russian oil and a reduction in discounts on it. Along with this, Reuters sources among traders reported that lower prices for Russian oil will help more Western shipowners enter the market, as the cost of domestic raw materials today is much lower than the Western price ceiling ($ 60 per barrel).

Ekaterina Kosareva added that an additional "sobering up" of the market would be the volume of compensation for oil production from the eight OPEC+ member countries, which they must provide on April 15.