Oil would be trading below $10 a barrel if the historic OPEC+ output cut deal agreed Sunday had not taken place, Kirill Dmitriev, CEO of the Russian Direct Investment Fund (RDIF) told Al Arabiya on Monday.
The Organization of Petroleum Exporting Countries (OPEC), Russia, and others, a group known as OPEC+ agreed to cut 9.7 million barrels per day on Sunday, which amounts to around 10 percent of global supply. The deal followed four days of meetings between top producers to find a solution to the oil market’s chronic oversupply as a result of coronavirus demand destruction.
“I think we would have seen oil below $10 a barrel. I think this deal is absolutely vital given the demand because of the coronavirus decline in the world so it really shows the wisdom of the leadership of Russia and Saudi Arabia,” Dmitriev said.
Oil prices have fallen by around half since the beginning of the year, testing the limits of some oil producers. However, it is not just producers who benefit from the deal, Dmitriev explained.
Without a deal, there would be “very low prices now but huge shock to consumers in two to three years because investment would be very low in the industry. So definitely a great deal for producers and for consumers,” he said.
The coronavirus has triggered governments to place countries on lockdown, dampening demand for petroleum products and causing oil prices to fall. The situation was exacerbated in early March when Russia walked away from a fresh round of cuts proposed by OPEC, precipitating an oil price war for market share. The new output cut agreement may signal an end to these disagreements.
“It’s very important that we’ve resolved all the differences, and there was a great leadership of President Putin, and also His Majesty the King, His Royal Highness Mohammed bin Salman who really brought us together,” Dmitriev commented.
RDIF, the Russian sovereign wealth fund, has a close investment relationship with Saudi Arabia, and opened its first overseas office in the Kingdom in October last year.
“It’s a very positive relationship between our leaders. Also even when we have some differences on oil we agreed with Saudi leadership that we will continue doing some investments together and continue doing other projects together,” Dmitriev said.
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