PUTIN'S RUSSIAN RULETTE
Even as Western sanctions over Ukraine bite, crashing oil prices are hitting Russia's economy and government finances.
OPEC announced on Thursday that it will leave production unchanged, despite hopes from some members to cut output to push prices. Instead, oil prices have plunged further, with U.S. crude tumbling below $70 a barrel.
A Russia oil tycoon on Lukoil's board predicted that OPEC's action will drive out unprofitable U.S. shale plays, reducing supply and boosting prices. Indeed, U.S. shale stocks plunged Friday. While U.S. marginal production could be affected down the road, Russia's economy is in trouble.
The Russian ruble has tumbled vs. the U.S. dollar amid growing concerns about the Russian economy. Capital is streaming out of the country while foreign investment is drying up. Russia's central bank spent a substantial sum in a futile attempt to defend the currency.
Russia's GDP is still rising, at least in rubles. But pricey imports and soaring inflation are starting to hit Russian businesses and citizens.
There are concerns about dollar-denominated borrowing by Russian businesses and banks. That in turn, could spur President Vladimir Putin to provide bailouts, especially to state-run enterprises.
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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.