Russia Bets On $40 Oil Through 2017

The Russian government will plan its 2017-2019 budget based $40 oil for the country’s signature Urals blend of crude, according to Finance Minister Anton Siluanov.

The minister added that the so-called budget rule—which will stop officials from spending surplus revenue over a specified oil price starting in 2020—will use a $40-a-barrel expectation to shelter the economy from market volatility. The remaining funds will then become part of the national reserves.

The Brent barrel price, which is used to price the Urals blend, last fell under $40 in early April.

“Plans can’t be made under the assumption that prices will grow and demand for our products will rise,” Siluanov said at a conference in Moscow on Friday. The Finance Ministry “always advocates a position against building exuberant plans, castles in the sky.”

Siluanov’s ministry has proposed an increase to the fiscal gap budget from 3.0 percent in 2016 to 3.2 percent in 2017. The shortfall would decrease by one percent every year until the budget rebalances in 2020.

The two-year oil price crisis has caused the longest recession in Russia in the past 20 years.

Prices could rise if members of the Organization of Petroleum Exporting Countries (OPEC) and Russia agree on a production freeze to counter the effects of the supply glut during an unofficial meeting in Algiers next week.

But Russian oil production reached a record high of 11.75 million barrels per day last week, and averaged around 10.71 million bpd in the month of August. Energy Minister Alexander Molodtsov said he would view domestic output of 11. 1 million bpd as “a fully realistic level.”

By Zainab Calcuttawala for Oilprice.com

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