Russian energy minister blames speculators, not fundamentals, for low oil prices

Oil prices are undervalued due to "speculative factors," Russia's energy minister said July 27, adding that demand for the country's crude is robust in the face of Western sanctions.

"The current price does not directly correspond to the balance of supply and demand on the market, but is mainly dependent on speculative factors," Nikolai Shulginov said in an interview with Russia's Tass news agency.

Needing significant oil revenues to fund its war effort in Ukraine, Russia has cooperated with its OPEC+ allies on implementing significant production cuts in a bid to shore up prices, with many other members of the group expressing similar frustrations about the crude market.

Platts, part of S&P Global Commodity Insights, assessed Dated Brent at $83.84/b on July 27 -- up 15% over the past month but still well below the peak of $101.72/b in November, when the OPEC+ alliance said it was rolling back its production quotas by 2 million b/d.

Concerns over the Chinese economy and the impact of high inflation in many consuming countries have caused prices to slump, many analysts say, though OPEC+ ministers have complained that the market was being overly bearish, with crude benchmarks only recently beginning to respond to further cuts made by the group.

In February, Russia said it would slash production by 500,000 b/d in response to Western sanctions, followed in April by several OPEC+ members committed to about 1.2 million b/d in additional voluntary production curbs. Saudi Arabia has made a further 1 million b/d unilateral cut from July that is to last until at least through August, while Russia has said it will reduce crude exports by another 500,000 b/d in August.

Russian crude has been trading significantly lower since the nation's invasion of Ukraine launched in February 2022 led to traditional Western buyers shunning Russian barrels. Platts assessed Russia's key crude grade Urals as trading at a discount of $15.84/b July 27.

This discount has narrowed considerably in recent months, as Russian exporters adapt to EU oil import embargoes and Russia cuts crude production. At times since the invasion, it was trading at a discount of more than $40/b.

"Russian oil remains in demand, it is competitive at almost any level of market prices, and as import substitution accelerates, the efficiency of field development will increase," Shulginov said.

Shulginov added that Russia's oil and refining sectors are operating stably and said the only things impacting output levels are agreements under the OPEC+ crude production deal.

Russia pumped 9.42 million b/d of crude in June, according to the latest Platts OPEC+ survey by S&P Global Commodity Insights, compared with 10.11 million b/d in February 2022.