Rystad Energy: in OPEC+ poker game, Russia holds better cards than Saudi Arabia

A month after the last unproductive OPEC+ meeting and with Covid-19 slashing demand amid the ongoing price war, the US has managed to broker a new extraordinary meeting for oil-producing nations. Russia and Saudi Arabia will be back to the negotiating tele-table on 6 April 2020 to discuss the output cuts of at least 10 million bpd, first announced by US President Donald Trump on Twitter on 2 April 2020.

The deal would help balance the demand shortfall and bring prices back to more profitable levels and help avoid production shut-ins. The sticking point is how much each producer is willing to cut. But, in case of another deadlock between Russia and Saudi Arabia, which of the two oil majors is better positioned to withstand an extended oil price war with fewer losses?

A Rystad Energy research shows that Saudi Arabia will suffer a bigger hit than Russia in all the following five financial criteria examined: the impact on oil and gas revenues, fiscal breakeven price, fiscal deficit and foreign currency reserves, budget deficits and domestic policy.

Impact on oil and gas revenue

In Rystad's base-case scenario of an average oil price of US$34/bbl of Brent this year and US$44 next year, Saudi Arabia’s revenues will halve this year compared to 2019 before recovering by 30% to almost US$135 billion in 2021. As a result, at a US$34 oil price, the country will lose US$105 billion of revenues in 2020 – and in case of a US$20 oil price, Saudi Arabia will lose up to US$150 billion this year, even with the increase in production.

Similarly, Russia’s revenues will slump by 47% in 2020 and recover back by 35% in 2021 to US$114 billion. Russia will lose about US$75 billion in revenue this year at a US$34 oil price, while the revenue shortfall could be US$110 billion at a US$20 oil price. Russia would hold up better than Saudi Arabia in terms of revenue loss in a US$20/bbl scenario because it has a higher contribution from gas to overall revenues.?