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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Russia’s Unexpected Advantage In The Oil Price War


While the ruble is now at its lowest level against the dollar in four years, the cheaper ruble has a silver lining for Russia’s oil producers in the oil price war for market share with Saudi Arabia.  The collapse of the OPEC+ deal and oil prices has hit Russia’s financial markets and currency, leading to a sharp drop in the ruble versus the U.S. dollar. The lower the ruble slides against the U.S. dollar, the lower the production costs of Russian oil companies in U.S. dollars are. 

To be sure, a crumbling ruble is not the preferred outcome of the oil price collapse for Russia’s monetary system and foreign currency reserves. Still, it could help Russian oil firms to have lower costs in U.S. dollars for their operations. 

According to calculations by Reuters, the lifting cost per barrel of oil equivalent of Russia’s largest oil producer, state-controlled Rosneft, is now lower than the costs of Saudi Arabia’s oil giant Aramco. And this is due to the falling ruble against the dollar. On the other hand, Saudi Arabia’s currency, the riyal, is pegged to the dollar at a fixed exchange rate, so the dollar costs for Saudi Aramco are the same before and after the oil price collapse and the collapse of the OPEC+ coalition. 

Last year, the average lifting cost in dollars per barrel of oil equivalent of Rosneft was $3.10. This compared to a $2.80 cost per barrel for Saudi Aramco, as per company financials cited by Reuters. 

The crumbling ruble has now cut Rosneft’s cost to $2.50 per barrel, while Aramco’s cost is the same because of the fixed exchange rate with the riyal peg to the dollar, Reuters calculations show. 

Related: The Real Reason Oil Prices Crashed Last week, Rosneft’s chief executive Igor Sechin, the most vocal critic in Russia of the now-collapsed OPEC+ pact, said that Rosneft’s operating costs are comparable to those of Saudi Aramco. Rosneft could even have higher efficiency because, unlike Saudi Arabia, it is not dumping the price of its oil. 

“Our operating costs are comparable to those of Saudi Aramco. Our cost is $3.10 per barrel, theirs is somewhere in the $2.50-2.80 range,” Sechin told news channel Rossiya 24.

“We can work efficiently and without dumping prices, as they [Saudi Arabia] do. Therefore our efficiency could even be higher than theirs,” Sechin said. 

Not everyone in Russia is as certain as Sechin that their company is beating Aramco in terms of low costs of production at a time of crumbling oil prices. 

Leonid Fedun, vice president of Russia’s second-largest oil producer Lukoil, described the oil price crash as “catastrophic” in an interview with Russian television channel RBC last week. 

Oil at $25 a barrel is catastrophic, Fedun said, adding that the OPEC+ deal collapse and the Saudi-Russian “war until exhaustion” that follows are the main reasons for the lowest oil prices in years. 

Admitting that the coronavirus pandemic hits economies and oil demand everywhere, Lukoil’s Fedun said that if OPEC and Russia had agreed to continue the cuts and cooperation, oil prices would now have been at around $50 a barrel. 

Asked to comment on Fedun’s assessment of ‘catastrophically’ low oil prices, the Kremlin spokesman Dmitry Peskov said on Friday that the oil price collapse was not “catastrophic” but a “very unpleasant pricing environment.” 

Russia has sufficient buffers to cope with the situation, Peskov told reporters, reiterating the official Russian position that it can live with oil prices so low for up to ten years.  

Last week, Moscow admitted that its revenues from oil and gas would be US$39.5 billion (3 trillion rubles) lower than planned due to the tumbling oil prices and that Russia’s budget would be in deficit this year. 

The collapse in oil prices and the outlook for severe demand destruction in the coronavirus pandemic may have some Russian companies rethink earlier policies to boost production as of April 1 when the OPEC+ pact expires, comments from a Russian oil executive suggest. 

Related: The Boldest Permian Plays To Watch As The Oil Market Circles The Drain

On Monday, executives from Russia’s top oil firms met with energy minister Alexander Novak for the second time in three weeks since the OPEC+ breakup and the price collapse.  


Tatneft’s CEO, Nail Maganov, who boasted two weeks ago that even $8 oil is not critical for the company, told reporters after Monday’s meeting that it may not be economically feasible for Russian firms to boost production from April, due to the coronavirus pandemic. 

“If it weren’t for the coronavirus, there would have been economic sense to increase production. Hardly anyone could have predicted such a collapse in prices,” said Maganov, quoted by TASS. 

Russia is reportedly confident of beating the Saudis in the pump-at-will-for-market-share game. But in the end, the game could turn out to be whose state finances will withstand the self-damaging price war amid demand so depressed that even taking 10 million bpd off the oil market now would not balance it. 

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on March 25 2020 said:
    Russia will win the oil price war waged against it by Saudi Arabia decisively for the following reasons.

    The first is that Saudi Crown Prince Mohammed bin Salman chose the wrong enemy. With Prince Mohammed facing Putin, the world’s most astute statesman and strategist, the outcome is already decided. Putin must have anticipated Prince Mohammed’s reaction to his refusal to agree deeper OPEC+ cuts and was prepared for it.

    The second reason is that Russia’s economy is able to live for years with an oil price of $25 a barrel compared with the latest estimate of $91 for Saudi Arabia’s. Moreover, Russia’s economy is one of the world’s most advanced economies and is well diversified compared with Saudi Arabia’s overwhelming dependence on the oil revenues.

    The third reason is that Saudi Arabia doesn’t have the production capacity to flood the global oil market. Its claim of having a production capacity of 12.5 million barrels a day (mbd) is unsubstantiated and is yet to be tested. If Saudi Arabia continues with its price war, it will end depleting both its sovereign wealth fund and its stored oil not to mention ending with the bankruptcy of its economy and the destabilization of the country.

    The fourth reason is that the lifting cost per barrel of Russia’s largest oil producer, Rosneft, is now lower than that of Saudi Aramco. This is due to the falling ruble against the dollar. Russian oil companies earn dollars and other hard currencies for their exports but pay for their operations in ruble. The lower the ruble slides against the U.S. dollar, the lower the production costs of Russian oil companies. As a result, Rosneft’s costs per barrel have fallen from $3.1 to $2.5 compared to a $2.80 for Saudi Aramco.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Doyle Philipson on March 25 2020 said:
    "cheaper ruble" roughly translated as, not wildly overinflated and volitile. Stop saying a ruble low against the dollar is a bad thing. The dollar is currently dying, the ruble is not. Wait till hyper-inflation starts before you decide what's a good idea or not.
  • Aceof Spades on March 25 2020 said:
    In other news:

    "Coronavirus live updates: Spain’s death toll surpasses China after biggest one-day jump"

    Are there any doctors out there who still think China has not vaccinated its people for the COVID-19?

    I just hope that the oil and gas industry is not dumb enough to believe Xi's lies.
  • Aceof Spades on March 25 2020 said:
    I wrote this e-mail yesterday to a close and personal friend in the news media.....she is my Helen of Troy:

    "Dear Sxxxxxn,

    Cases: 350,000
    Deaths: 15,000

    Thant places the mortality rate at 4.3%

    Again, if we are going to compare this to the flu, then we should calculate the mortality rate using the same approach as we do for the flu.

    Looks like Russia is doing quite well in controlling the spread of COVID-19 within its borders. Perhaps they’re very good in social distancing and had an overabundance of test kits on the ready….or perhaps Xi did not want to risk playing Russian Roulette with President Putin when the call came in….inquiring about a vaccine that some Ace stated that China has.

    Be well,
    Stay healthy.

    We’re still all good here on the barrier island in case you need a well isolated home by the ocean….with lots of sunshine and vitamin C."
  • Rick Okaysik on March 26 2020 said:
    You would have to be a fool to believe Putin on C19. He is very obviously trying to hide the severity. Putin is also clamping down on civil freedom with C19 as an excuse.

    Russia needs to rise up and overthrow Putin. The Russian people are long overdue for a revolt.

    You are stronger than this!
  • Binkley North on March 26 2020 said:
    Can't help but agree with Dr. Salameh: of course the aspiring hereditary ruler bin Salman knew these things and had his main critics (and threats to his aspirations) arrested. And yet his old father is still able to chair the G20 I'd love to be a fly on that wall.

    It is of course a way to extend the war against Iran (with all that that includes in the way of sectarian differences) without actually risking bloodstains on the royal robes... or does he just have a really large wardrobe?
  • Russ T on March 26 2020 said:
    Saudi have a highly volatile temper. Money do not favor that because it will always be a cold, calculated decision.

    Aramco acting up because it seeks to destroy demand and supply because of how in 2018 its major supplies were attacked. It sat down and planned on how to do the havoc. Now Saudi marked as morons for the rest of economy. This discounts will be sucked up and counted as profits for the rest of the world.

    While Saudi have money they do not have economy bacause sun dunes will not allow crops to grow and after all all it can do is to dig minerals. The same that Russia can do but does't have to rely on. Even selling forest is not something Saudi can.

    Russia have been in oil business longer than Saudi. Russia has homegrown equipment to explore, to drill, to transport, to store. Including byproducts like gas for the station own heating or local export.

    However, nuclear reactors, ships, super jet and other avionics, space rockets, microelectronics, military equipment, is just a few to name how well its production is deversified in Russia.

    One more thing to mention is that Russia is not just sitting on its oil. It has made a wise choice of stocking up on expensive metals and minerals. Gold in particular is something that US have not raised in a long because of its sheer debts of 23.6 trillions (no not rubles, US dollars) >100% GDP. While gold reserve of US still higher (although it has not incleased even by 1% in the last 10 years), Russia over the last 10 years raised its total gold reserved by 500%. Interestingly enough equily deposited each year up to the current year.

    Russia also grew its ties with India, China and most of South America, something that was not there since USSR dissaperance. Although, this time they are hopefully more wisely choosing their allies. Personally, I would not trust Turkey to hold my $100 bill, even if I knew where to send rockets if they don't return. Currently morals, are only high with India, Russia, Philippines, and China. Europe has no its own choice. US only follows the money string. Saudi? Mostly vengeance and pointless proxy wars but likewise they are very dependent on US to sell their oil.

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