Russia battens down the hatches for oil at $40

Perhaps the Bank of Russia knows something the world doesn’t.

As the Organization of Petroleum Exporting Countries and its allies prepare to meet for a review of their production cuts this weekend, the central bank of the world’s biggest energy exporter is hunkering down for years of oil near $40 a barrel.

While analysts in a Bloomberg survey see the price of benchmark Brent crude — which trades at a small premium to Russia’s Urals export blend — rising 16 percent from current levels by the end of the year, oil’s 10 percent decline in March alone amid supply woes is making the market nervous. Russia, a key partner in the deal and a participant in the talks in Kuwait, might only add to those jitters.

“The Finance Ministry, the cabinet and the central bank are leaning on the cautious side in terms of their expectations regarding growth, driven still to a large degree by oil,” said Piotr Matys, an emerging-market currency strategist at Rabobank in London. “It’s better to be conservative and to be surprised on the upside than too optimistic and end up disappointed.”

Policy makers in Moscow said on Friday they see Urals at an average of $50 a barrel this year, but falling to $40 at end-2017 and then staying near that level in 2018-2019. As the central bank honed its forecasts, it also gingerly resumed monetary easing, pointing to the “uncertainty” in the oil market as a factor for its “conservative” forecasts.

Russia’s Finance Ministry similarly highlighted the $40 level in January when it announced that the central bank will start buying foreign currency on its behalf when crude exceeds that level in order to insulate the exchange rate from oil volatility.