December 5, 2008
Predicted $25 oil could be very bad news for Russia
Russia’s recent economic growth has been almost entirely due to its ability to deliver record oil and gas production at record prices. With prices in free fall, Russia’s economy will be stressed much more more than much of the world. With much of its revenues coming from oil, the government’s ability to intervene will be limited, and it’s ambitious spending plans will be scaled back. Hopefully, greater economic diversification will come as a result, but sadly it won’t come without some pain for the average Russian.
“In the short-run, market participants will focus on both OPEC and perhaps even non-OPEC producer responses to balance the market.”
“A temporary drop below $25 is possible if the global recession extends to China and significant non-OPEC production cuts are required,” it said.
“In our view, oil prices could find a trough at the end of Q1 2009 or early Q2 2009 with the seasonal slowdown in demand. Then, as economic activity starts to strengthen, we see oil prices posting a modest recovery in the second half of 2009.”
Filed under Business, Commentary, Politics by admin
October 22, 2008
Oil bubble burst spells trouble for Russia’s governmnental budget
Big revenues fueled by extreme oil prices enable ambitious spending plans for Russia’s government in the last year. As oil prices continue in free fall many of the plans may be threatened as the Russian Government faces potential deficits.
The 70 dollar mark is significant for the Russian government, which relies heavily on tax revenues from oil and gas extraction. In September, Deputy Prime Minister and Minister of Finance Alexei Kudrin made the public announcement that Russia’s 2009 budget would enter a deficit if oil prices sank below 70 dollars per barrel.
“70 per barrel is the price of a balanced federal budget for 2009,” Kudrin had said, noting that the budget was formed with that price in mind. “That being said,” he went on, “the budget forecast for the average cost of oil in 2009 equals 95 dollars per barrel.”
Analysts said that the dropping oil price was related to three major issues: slowing economic growth connected with a global recession, a growing difficulty in obtaining credit, and increased production outputs from non-OPEC member countries. (The Other Russia)
