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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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