Russian Economics - OPEC+: Oil Prices More Important Than Volumes

In this report, we analyze the macroeconomic implications of the new OPEC+ deal. While the agreement will lower GDP growth this year, the impact will be modest. In fact, those losses could be compensated for by a better performance in other segments thanks to a higher and more stable price than what would have been otherwise. In the current environment, prices and price stability are the most important factors, not production and export volumes. Obviously, the deal will provide some support to oil prices, which will be extremely important for maintaining a stable exchange rate and reviving the economy in 2H20.> Terms of the OPEC+ deal. Russia will lower its oil output (including gas condensate) to 9.5 mln bpd in May-June, down from just above 11 mln bpd in 1Q20. Production will pick up to 10 mln bpd in 2H20 and then 10.5 mln bpd in 2021. Taking into account the 1Q20 figures, oil output is set to decline 7.6% this year and then rebound 1.6% next year.> Impact from drop in oil product output to be stronger than that of drop in oil output. This is because of a fairly significant multiplier effect for oil products. The negative effect on the entire economy this year will amount to 0.9% of GDP.> Oil price stability more important than production volumes. The fiscal measures announced so far to support the economy during the Covid-19 crisis total R2 trln, and this figure will grow. A drop in volatility and then a possible rebound in oil prices in 2H20 should help the Russian economy recover and minimize the damage to the budget.