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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Russia May Feel Pinch From Oil Cut Deal This Year

Russia’s economy may come to feel a negative impact from the OPEC-led oil production cut deal, the central bank warned, adding that it expected GDP growth during the first quarter of the year to stand at 0.4 percent on a quarterly basis and rise to 0.5 percent quarter-on-quarter in April-June.

Russia agreed to cut 300,000 bpd from its post-Soviet record-high oil production of over 11.2 million bpd in November 2016, to aid efforts by OPEC and several smaller producers to relieve a global glut that sank prices to less than US$40 a barrel.

“We assume that the OPEC+ deal... along with weaker demand for natural gas from abroad will temporary curb a growth in (Russian) production which may have a negative impact on economic growth in general,” the bank said.

Gazprom reported 10 percent lower non-CIS gas exports for January this year resulting from the unusually soft winter in Europe, its biggest customer.

Higher oil prices last year helped Russia swing into the black earlier than most analysts projected, but some observers have noted that too high prices are not good for its export-oriented economy, either. Higher oil prices make the ruble more expensive, which Moscow doesn’t want as it reduces the competitiveness of export goods. That’s why the central bank embarked on a dollar-buying spree to keep the ruble depressed. Related: Saudi/Russia-Led Oil Supergroup In The Making

Oil companies have complained that the continued production cuts interfered with their growth plans, which led to speculation that Moscow could try to push OPEC for an earlier end to the deal. For now, however, Moscow is toeing the line, and the Energy Ministry is sticking to its original oil price forecast for the year, at US$50-60 a barrel.

Earlier this year, Economy Minister Maxim Oreshkin said that prices of US$70 per barrel of Brent were unsustainable and added that over the medium term, prices will most likely stay around US$60 a barrel.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on February 16 2018 said:
    How could this be true when Russian oil minister Alexander Novak said on the 13th of February that since the start of the OPEC/non-OPEC production cut deal, Russia’s oil companies and government have received the equivalent of around US$41.5 billion more in proceeds, thanks to the higher oil prices. He also said that Russia’s federal budget has received so far $29.41 bn more while Russian oil companies $12.11 bn.

    There has been a weaker demand for natural gas abroad resulting in a slight decline in Russian gas exports but that was more than offset by rising income from crude oil exports.

    In 2017 the Russian GDP grew by 2.5%, the fastest in five years and with rising oil prices the GDP in 2018 is projected to match last year’s growth if not top it.

    And while it is true that higher oil prices make the ruble more expensive for Russian non-oil and gas exports, this again is more than offset by its receipt of euro payments for the overwhelming gas exports and the yuan, Singapore dollar and Hong Kong dollars as well as US dollars for its oil exports. Furthermore, Russia does a huge amount of barter trade which eliminates the impact of any volatility in the value of the ruble.

    Dr Mamdouh G Salameh
    International Ol Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • John Brown on February 16 2018 said:
    The U.S. oil industry owes a big wet kiss to Russia, or OPEC/RUSSIA. By artificially restricting production and idling capacity to keep oil, WTI at or over $60, they have created a U.S. shale oil and gas GOLD RUSH. U.S. production would grow slowly at $50, but at plus $60 its a bonanza. That's why U.S. production is outstripping all forecast. If the prices continues to be manipulated for WTI over $60 and forecast of higher like Goldman Sachs's $82, then U.S. production will hit 11 Million by mid-2018, and 13 Million by the end of 2019. Its extremely thoughtful of the Russians to continue to reduce their production so the USA can continue to produce, lower production cost, improve speed to market, and basically become the largest producer in the world.
  • LM on February 17 2018 said:
    Classic response.

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