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OP 2020: Win-win for Russia on green and black energy

Ole Hansen
Head of Commodity Strategy

Summary:  Rosneft and Norilsk both jump 50% in response to rising demand for oil and green energy-related metals.

In 2020, OPEC and Russia, sensing a slowdown in U.S. shale oil production on lack of investment returns in the sector, seize the opportunity and announce a major additional cut to their oil production. The timing also coincides with the next round of Aramco’s IPO which helps to ensure the desired valuation from investors outside the Kingdom. The market is caught off guard and the scramble to cover shorts in the oil market and hedgers rushing to cover underhedged exposure to higher prices eventually sees Brent crude oil return to $90 per barrel. In Russia, this proves a massive win, not only for Rosneft, but also for Russia’s public finances, where the 2019 budget breakeven was based on an Urals price of $49 per barrel.  Shares of Rosneft, Russia’s largest oil company, jump 50%.

Elsewhere, the green energy industry suffers a setback in 2020 on the back of too much hype and low investment returns. And yet, the long-term policy focus on electrical vehicles and pollution-control devices in cars continues to grow as climate policy commitments deepen all over the developed world. Russia stands to benefit on two fronts: first as the world’s largest supplier of palladium, used in vehicles to improve air quality and one of the best performing commodities in 2019. A further surge unfolds in 2020 as the Democrats take the White House in a landslide win and together with India tighten emission standards.

Second, Russia benefits from the move away from cobalt and toward increasing use of nickel in the EV-battery market. In 2020, nickel demand soars. Governments in advanced economies subsidise increased electrical vehicle sales and Germany’s major auto makers start to swing into full production, looking to secure long-term supplies of batteries. And while Indonesia has decided to curb export of nickel mineral-ore from January 2020 to favour domestic smelters, Russia’s MMC Norilsk Nickel enjoys the tailwind from increased demand and higher prices and, like Rosneft, sees its share price advance 50%. 

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