miércoles, 16 de diciembre de 2015

miércoles, diciembre 16, 2015

Russia plans $40 a barrel oil for next seven years as Saudi showdown intensifies

'We will live in a different reality,' said a top Kremlin official. The message is aimed squarely at Saudi Arabia in a war for market share

By Ambrose Evans-Pritchard

Oil and gas platform off Sakhalin Island, Sea of Okhotsk, Russia
Russia is locked in an oil battle with Saudi Arabia-led Opec Photo: EPA
 
 
Russia is battening down the hatches for a Biblical collapse in oil revenues, warning that crude prices could stay as low as $40 a barrel for another seven years.
 
Maxim Oreshkin, the deputy finance minister, said the country is drawing up plans based on a price band fluctuating between $40 to $60 as far out as 2022, a scenario that would have devastating implications for Opec.
 
It would also spell disaster for the North Sea producers, Brazil’s off-shore projects, and heavily indebted Western producers. “We will live in a different reality,” he told a breakfast forum hosted by Russian newspaper Vedomosti.
 
The cold blast from Moscow came as US crude plunged to $35.70, pummelled by continuing fall-out from the acrimonious Organisaton of Petrol Exporting Countries meeting last week.

Record short positions by hedge funds have amplified the effect.
 
Bank of America said there was now the risk of “full-blown price war” within Opec itself as Saudi Arabia and Iran fight out a bitter strategic rivalry through the oil market.
 
Brent crude fell to $37.88, even though demand is growing briskly. It is the lowest since the depths of the Lehman crisis in early 2009. But this time it is a 'positive supply shock', and therefore beneficial for the world economy as a whole.



The International Energy Agency said in its monthly market report that Opec has stopped operating as a cartel and is “pumping at will”, aiming to drive out rivals at whatever cost to its own members.

Opec revenues will fall to $400bn (£263bn) this year if current prices persist, down from $1.2 trillion in 2012. This is a massive shift in global wealth.

The IEA said global oil stocks were already at nose-bleed levels of 2,971m barrels, and were likely to increase by another 300m over the next six months as “free-wheeling Opec policy” floods the market.

The watchdog played down fears that the world was running out of sites to store the glut, citing 230m barrels of new storage coming on stream. Inventories in the US are still only at 70pc capacity. But this could change once Iranian crude comes on stream later next year.

Russia’s $40 warning is the latest escalation in a game of strategic brinkmanship between the Kremlin and Saudi Arabia, already at daggers drawn over Syria.

The Russian contingency plans convey a clear message to Riyadh and to Opec’s high command that the country can withstand very low oil prices indefinitely, thanks to a floating rouble that protects the internal budget.

Saudi Arabia is trapped by a fixed exchange peg, forcing it to bleed foreign reserves to cover a budget deficit running at 20pc of GDP.



Russia claims to have the strategic depth to sit out a long siege. It is pursuing an import-substitution policy to revive its industrial and engineering core. It can ultimately feed itself. The Gulf Opec states are one-trick ponies by comparison.

The deputy premier, Arkady Dvorkovich, told The Telegraph in September that Opec will be forced to change tack. “At some point it is likely that they are going to have to change policy.

They can last a few months, to a couple of years," he said.

Kremlin officials suspect that the aim of Saudi policy is to force Russia to the negotiating table, compelling it join Opec in a super-cartel controlling half the world’s production.

Abdallah Salem el-Badri, Opec’s chief, came close to admitting this last week, saying the cartel is no longer big enough to act alone and will not cut output unless non-Opec producers chip in.




“We are looking for negotiations with non-Opec, and trying to reach a collective effort.

Everybody is trying to digest how they can do it,” he said

Russia is in effect calling Opec’s bluff, gambling that it has the greater staying power. It cannot easily cut output since its main producers are listed companies, answerable to shareholders.

Any arrangement would have to be subtle.

Mr Dvorkovich gave an oblique answer when asked whether Russia would ever do a deal. "We are not going to cut supply artificially. Oil companies will act on their own. They will look at market forces and decide whether to invest more or less. If prices stay low, it is in the nature of oil companies to stabilize production, or even to cut production," he said.

Whether Russia really can withstand the strain for years is an open question. The economy is in deep recession. Output has contracted by 4pc over the last year. Real incomes have fallen by 9pc. The latest gambit may in reality be a negotiating ploy.




Mr Oreshkin said oil prices of $40 would force the government to bleed its reserve fund by 1.5 trillion roubles next year, or 2pc of GDP.

Standard & Poor's says the budget deficit has reached 4.4pc of GDP, including local government shortfalls. A further $40bn is needed to bail out the banking system.

“They just don’t have the money. The deficit is heading for 5pc of GDP,” said Lubomir Mitov from Unicredit.

“The biggest danger is that the reserve fund will be exhausted by the end of 2016. They will then have to monetise the deficit or cut real spending by another 10pc. They can’t cut defence so that leaves social welfare,” he said.

Bond markets in Russia are shallow. The country cannot hope to borrow abroad on any scale as long as it is under Western sanctions.

Saudi Arabia’s leaders are fully aware of the Kremlin’s painful predicament. They appear certain that they can outlast Russia in a long duel. By the time we find out which of these two petro-giants is stronger, both may be on their knees.

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