The Russian Economy Ministry said in a statement it expected crude oil prices to remain stable at their current range of US$45-50 over the next two years, with a sustainable improvement beginning in late 2017.
The latest rally in prices, according to the ministry’s statement, has “a speculative nature” and will not last long. This was proven yesterday when the American Petroleum Institute released its weekly report on inventories, stunning the market with a 4.46-million-barrel buildup, when almost all analysts expected a draw and the only group – polled by S&P – that forecast an increase was much more modest in its expectations, at a build of 200,000 barrels.
The Economy Ministry went on to add in the statement that oil fundamentals were moving in line with “basic forecasts”; that is, the market is on its way to rebalancing, with the glut gradually easing. But this process will take time.
Russia is among the producers vitally interested in a production cap, as it is heavily dependent on oil revenues. Like others in this position, however, it seems Moscow is clearly aware that the cap is not coming any time soon.
Prime Minister Dmitriy Medvedev yesterday announced the budget deficit for 2016 is likely to exceed 3 percent of GDP. This, he said, is more than what the government planned, because plans were made on the basis of US$50 crude. The over-3-percent scenario will unfold if oil falls below this price level, which is more than likely to happen again and again until the end of the year as markets remain extremely volatile even though fundamentals are relatively unchanged.
At the time of writing of this article, Brent crude was trading at US$49.36 a barrel, down 1.2 percent, while West Texas Intermediate was changing hands at US$47.39, down 1.48 percent, both benchmarks hit by API’s report and the market awaiting the official U.S. inventory figures, to be released later today by the Energy Information Administration.
By Irina Slav for Oilprice.com
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