OPEC, Russia, at Odds Again Over Market Outlook

The former Soviet Union has planned for $40 oil, and OPEC thinks market demand is rising.

Once more, the Organization of the Petroleum Exporting Countries (OPEC) and Russia, having recently mended a perceived rift between themselves, seem at odds again, at least in terms of market outlook: the former is anticipating "healthy" demand growth to 2022, while the former Soviet Union says it is "prepared" for $40 oil.

Mohammad Barkindo, secretary-general for OPEC, over the weekend stated that crude demand will climb an average 1.2 million barrels per day (bpd) through 2022 and slow to 300,000 bpd in 2035 to 2040.

He added that wind, solar, geothermal and photovoltaic sources will be the fastest-growing energy, increasing by an average of 6.8 percent a year from 2015 to 2040; however, "in the global energy mix, we see fossil fuels retaining a dominant role albeit with a declining overall share through 2040."

Barkindo's forecast would presume some sort of upside for crude, but Anton Siluanov, finance minister for Russia, said his country has already accounted for $40 oil in its budget: "I think that this is a fairly considered and conservative price, which has been factored in for the next three years.

"Incidentally our balance of payments on our current account is balanced on a price of $40 per barrel; therefore, the percentage of the federal budget from oil and gas revenues has gone down from 60 percent to 40 percent."

The Russians' conservatism is understandable given the volatility of the market, and it still remains a big question mark whether the 1.2 million bpd demand increase OPEC predicts will be enough to offset persistently growing output from a host of countries, including the U.S.

Indeed, the U.S. Department of Energy said drillers are expected to increase production in several shale oil and gas regions by another 81,000 bpd next month; total output for November in the areas is forecast to reach 6.12 million bpd,

Part of that increase will come from the Permian basin: the region's output is poised to increase by 50,000 bpd next month.

Earlier this month, Alexander Novak, energy minister for Russia, told media that the global glut had been halted since end-2016 and $50 to $60 oil per barrel is now an "optimum" range.