Oil Prices Fall Again, as Supply War Looks More Likely

The Brent oil benchmark had sunk to $22.87/b as of 09:10 GMT on March 30, its lowest point since the early 2000s and down 8.3% from the close of trading on March 27. US West Texas Intermediate (WTI) futures dropped below $20/b to $19.90 in early Asian trading, its lowest level since March 20. It has since recovered to $20.36, but this is still down 5.4% from the previous close of trade.

Oil prices continue to be weighed down by coronavirus (Covid-19) lockdowns, which have caused fuel demand to collapse. Despite the bearish market conditions, however, Russia and Saudi Arabia still seem committed to a supply war. Riyadh is still not in talks with Moscow on cutting output to rebalance the market, Reuters reported on March 27, citing a Saudi official. 

Rosneft exits Venezuela

The Trump administration is also reported to be considering sanctions on Russia to force the country to slash its production, in order to prop up prices and support the struggling US shale industry. This month Washington has also slapped sanctions on two subsidiaries of Russia's state oil company Rosneft, which it says have served as intermediaries in the export of Venezuelan oil – actions prohibited under the US sanctions regime against Venezuelan president Nicolas Maduro's regime.

Rosneft announced on March 28 that it had divested its Venezuelan business, including its upstream ventures with PDVSA as well as its oilfield services, commercial and trading operations, to a wholly state-owned Russian company. The move is aimed at protecting Rosneft's shareholders from US sanctions, which it now expects to be lifted, the company told Russia's Tass news agency.

In exchange for the Venezuelan assets, Rosneft has received a 9.6% share of its own equity that will be held by a wholly-owned subsidiary of the company. Rosneft did not name the firm that had acquired its assets, nor which of its shareholders had transferred the 9.6% stake. However, its majority shareholder with a stake of just above 50% is Rosneftegaz, according to its website, a 100% state-owned holding company which also has shares in Gazprom and other major Russian energy firms. Rosneft's other shareholders include BP with 19.75% and Qatar with 18.9%.

 While the Venezuelan transaction may protect Rosneft's business from sanctions, the Russian government will be taking on more risk itself. What is more, if the deal does involve Rosneftegaz, this would mean that Rosneft, for the first time, is no longer majority-owned by the Russian state.