SANCTIONS VS PRICES
Oil prices that have plunged to a 27-month low are inflicting damage on a Russian economy already contending with escalating sanctions from the U.S. and European Union over its role in Ukraine.
The U.S. and EU have targeted individuals, companies and the finance, energy and defense industries to punish Vladimir Putin's government after Russia annexed Crimea and gave support to separatists in eastern Ukraine. While Schlumberger Ltd. and Exxon Mobil Corp. scaled back oil-related operations in September, that didn't stop Russian production of crude and condensates from rising to near a post-Soviet era record.
"In the short-term, the falling oil price will be a big blow to the economy, especially if it reaches $80 a barrel," Alexei Kudrin, the finance minister from 2000 to 2011 who helped return Russia's budget to surplus, said by phone today. "However, in the long run, the sanction will have a more serious impact."
Russia will require an oil price of about $104 to balance its budget in 2015, Sberbank estimates. Brent crude, a benchmark for more than half the world's oil including Urals, Russia's main export blend, declined more than $20 since its 2014 peak in June and traded at about $92 a barrel today. It closed at $92.31 on Oct. 3, the lowest since June 2012.
Russia may have to cut spending if oil falls below $80 and stays there, according to Vladimir Pantyushin, chief strategist at Sberbank. The futures curve for Brent crude shows prices ranging from $93 to $96 a barrel next year, having averaged $107 so far in 2014.
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REUTERS - Brent crude futures LCOc1 were down 72 cents at $61.49 per barrel at 1020 GMT, having fallen by 1.5 percent on Tuesday, its largest one-day drop in a month. U.S. West Texas Intermediate (WTI) crude CLc1 was at $55.12 per barrel, down 58 cents.
BLOOMBERG - Prices dropped during the session as the International Energy Agency said the recent recovery in oil prices, coupled with milder-than-normal winter weather, is slowing demand growth. The worsening outlook for consumption dampened some of the enthusiasm that OPEC and its allies will extend supply curbs.
Global energy needs rise more slowly than in the past but still expand by 30% between today and 2040. This is the equivalent of adding another China and India to today’s global demand.
Product exports have grown significantly over the past several years and are expected to continue to grow as Russian refineries add capacity to produce more high-quality products.