Russia sees Middle East tensions largely factored into oil price: Novak

Russian Deputy Prime Minister Alexander Novak said that events in the Middle East are affecting oil markets, but added that this has mainly been factored already into prices, which have not reacted significantly to the regional upheaval.

Israeli attacks have escalated in recent days, leading to the death of Hezbollah leader Hassan Nasrallah, as well as damage to oil storage and energy infrastructure in the Red Sea ports of Hodeidah and Ras Isa in Yemen.

The ICE December Brent crude futures contract initially rose Sept. 30 to as high as $72.79/b, but fell back to $72.15/b as of 1630 GMT, up 61 cents on the previous close, as geopolitics continues to have a muted impact on prices.

“The events occurring here and now in the Middle East are affecting the market, definitely,” Novak said Sept. 30 in an interview with Al Arabiya on the sidelines of Russia Energy Week in Moscow. “But we can often see that...when there is a moment when it is affecting [the price] rather drastically...it becomes a part of the baseline.”

Novak said that Russia can "live through any price" and pointed to positive economic growth in the country in 2023 and 2024 as a sign that it is coping with low oil prices, according to the interview. Russia’s invasion of Ukraine in February 2022 has had a profound impact on the country’s economy, triggering punishing Western sanctions on its financial and commodities sectors and its military campaign incurring significant costs.

“In recent weeks the prices have been volatile… [But] I think things are going to get back to normal,” Novak said, according to the report.

Supply overhang

Novak's comments were echoed by Goldman Sachs, which said global oil prices are getting limited support from the rising geopolitical tensions in the Middle East as the market is focused on potentially higher oil supplies from Libya and Saudi Arabia.

Goldman said it continues to forecast that Brent futures will trade in a $70-85/b range, recovering somewhat to $77/b in Q4 as the market remains in deficit and as valuation and positioning are very low. Brent could then descend back to $74/b by December 2025 due to a 700,000 b/d supply surplus next year, Goldman said.

"We believe that this price action reflects a limited geopolitical risk premium and market expectations of potentially higher oil supply following press reports about Libyan oil supply and a Financial Times article about Saudi Arabia supply," Goldman said in a Sept. 30 note.

Physical Brent crude prices have fluctuated around $70-75/b since early September, according to assessments by Platts, part of S&P Global Commodity Insights. Platts last assessed Dated Brent at $71.975/b on Sept. 27.

Prices are under downward pressure from non-OPEC+ supply, quota non-compliance, and weak economic forecasts, causing consternation within OPEC+.

Analysts see little prospect of price rises over the next few months. Commodity Insights analysts forecast Dated Brent averaging $76/b in the fourth quarter of 2024, and $75/b in 2025 amid expectations that global oil and liquids production will outpace the growth of global oil demand in 2025.

A senior Iranian official, however, said that if Islamic countries want to respond to Israel they should stop oil production for a week, which would increase the price of oil to $200/b.

“The increase in oil prices puts pressure on the people of Western and European countries, so they will definitely want to change their government's policies,” a member of the Iranian parliament’s National Security and Foreign Policy Commission Mohammad Mehdi Shahriari told local news outlet Didbaniran.ir.

OPEC+ easing

On supply, Goldman said it expects OPEC+ will go ahead with gradual production increases in the next few quarters because "disciplining non-OPEC+ supply and supporting internal cohesion and global oil demand is likely the optimal long-run strategy."

On the demand side, Goldman said it sees limited upside risk to its forecast that China's oil demand will rise by just 200,000 b/d year-over-year in 2025 to 16.4 million b/d.

Novak is Russia's key negotiator in OPEC+ discussions. The joint ministerial monitoring committee overseeing the deal next meets Oct. 2 to discuss oil markets and policy.

He said the group’s cooperation is likely to continue beyond current agreements in force up to the end of 2025.

“Everything is based on the agreements we have here and now,” Novak said. “We will see how the situation develops in the markets."