Oil prices have collapsed again – Russia is frantically looking for a way out
5 May 08:04
Oil prices plunged by more than $2 per barrel in early Asian trading on Monday as OPEC plans to accelerate its oil production increase. This raises concerns about an oversupply on the market, "Komersant Ukrainian" reports citing Reuters.
According to OilPrice.com, futures for Brent crude oil fell by $2.27 per barrel, or 3.70%, to $59.02 per barrel as of 07:49 Kyiv time, while US West Texas Intermediate was trading at $55.93 per barrel, down $2.36, or 4.05%.
OPEC increases production
Both contracts hit their lowest level since April 9 after OPEC agreed to accelerate its oil production increase for a second straight month, raising output by 411,000 barrels per day (bpd) in June.
The June increase from the eight producing countries will bring the total cumulative increase for April, May and June to 960,000 bpd, representing a 44% reversal of the 2.2 million bpd of various cuts agreed to since 2022, according to Reuters calculations.
“OPEC’s decision on May 3 to raise production quotas by another 411,000 bpd in June reinforces market expectations that the global supply and demand balance is moving towards a surplus,”
– Tim Evans, founder of Evans on Energy, said in a research note.
The group may completely cancel its voluntary cuts by the end of October if members do not improve compliance with their production quotas, OPEC sources told Reuters.
The sources also said that Saudi Arabia is pushing OPEC to accelerate the lifting of previous production cuts to punish member countries Iraq and Kazakhstan for poor compliance with their production quotas.
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The situation in the Middle East
Meanwhile, tensions in the Middle East escalated after Israeli Prime Minister Benjamin Netanyahu promised to retaliate against Iran for the fact that a Tehran-backed Houthi group fired a missile that landed near Israel’s main airport.
Iranian Defense Minister Aziz Nasirzadeh said on Sunday that Tehran would retaliate if the United States or Israel attacked it.
Forecast
Barclays Bank has lowered its forecast for Brent crude by $4 to $66 per barrel in 2025 and by $2 to $60 per barrel in 2026 due to the accelerated lifting of OPEC cuts, analyst Amarpreet Singh said in a research note.
Russia is already hurting
It is well known that Russia is critically dependent on its energy exports. First of all, on oil exports. In 2024, the federal budget revenues from oil sales amounted to 9.19 trillion rubles (approximately $89.4 billion). Total budget revenues for this period amounted to 36.71 trillion rubles. Thus, the share of oil revenues in the total structure of Russian budget revenues in 2024 was approximately 25%
This indicates that, despite international sanctions and attempts to diversify revenue sources, oil remains a key source of financing for the Russian budget.
Russian Urals oil is traditionally sold at a lower price than Brent and WTI, and it is also subject to additional factors that raw materials from other countries do not experience, namely Western sanctions. However, during all three years of the full-scale war with Ukraine, Russia has been successfully selling its oil – its main buyers today are China and India.
The federal budget of the Russian Federation for 2025 included an oil price of $70. Meanwhile, due to the collapse in the global oil market caused by Donald Trump ‘s trade war and OPEC’s decision to further increase production, the price of Russian Urals oil, according to the Ministry of Finance, was $55 per barrel on May 1.
So far, market analysts’ forecasts do not promise Russia any serious problems related to the price of oil, as it still has a very large backlash for sales. According to economic expert Oleg Pendzin, even a price of $50 per barrel is still acceptable for Russia.
“Currently, the direct cost of Russian oil production is about $37-38 per barrel. This is the direct cost. The critical figure for Russia is the sales price of $45,”
– the economist explained exclusively for .
So, a more likely way to hurt Russia over oil is still to increase sanctions, including secondary sanctions against its buyers. The point of this step is to make it physically impossible for Russia to sell large volumes of oil and thus receive funds to continue its aggressive war of aggression.
However, back during his election campaign, after making statements about ending the war in 24 hours or 100 days, Donald Trump made a very realistic statement. He said that in order for Russia to lose the ability to fight, it would be enough to simply collapse oil prices. And he seems to be going to do that if Russia does not make concessions. Whether Trump realizes it or not, this is exactly the scenario that is happening now.
The Russian economy is already slowing down significantly at current oil prices, the industry is stagnating, and recession looks like a very real prospect.
And if the downward trend in prices continues, the figure of $45 per barrel does not look so fantastic.
Russia is already trying to respond to the current situation. This week, the State Duma will consider a government bill to revise the federal budget figures to increase its deficit by 250% (from USD 12 billion to USD 42 billion).
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