RUSSIA BETS ON $40 OIL
No plans to revise budget outlook
Russia is sticking with an assumption that oil will average US$40 a barrel in the next three years and won’t take the bait by revising its budget outlook after a preliminary agreement by OPEC on its first production cut in eight years, according to Finance Minister Anton Siluanov.
While crude is trading near US$50 after Wednesday’s announcement, heading for the first September increase since 2010, “we know prices are adjusted after such statements,” Siluanov told reporters in Russia’s Black Sea resort of Sochi. The price of Russia’s main export blend Urals used to calculate the country’s budget “was and remains” at US$40 a barrel, he said.
“You think it’s stabilized?” Siluanov said. “We need to see how realistically the decisions will be implemented.”
Although the world’s biggest energy exporter has signalled it’s willing to join efforts with OPEC to control global supply, it’s on course to pump oil at a post- Soviet record in September, adding as much as 400,000 barrels a day to the country’s output. The surprise deal, which will see the Organization of Petroleum Exporting Countries reduce production to a range of 32.5 million to 33 million barrels a day, sent oil surging more than five per cent.
The market was caught by surprise after Saudi Arabia and Iran had signalled before the meeting that an accord was unlikely. OPEC now faces the challenge of implementing the cuts, with Goldman Sachs Group Inc. and Morgan Stanley expressing skepticism that it can be completed. Prices may struggle to hold above US$40 a barrel unless OPEC acts, Citigroup Inc. predicts.
Already running its widest deficit since 2010 this year after oil’s collapse, Russia is preparing its budget for the next three years. The Finance Ministry has proposed a fiscal gap of 3.2 per cent of gross domestic product in 2017. It then plans to reduce the shortfall by one percentage point each year to balance the budget by 2020.
The deficit will be wider this year than earlier forecast and may increase to as much as 3.7 per cent of GDP, beyond the earlier estimate of 3.2 per cent, according to Siluanov.