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Putin: Russia Is Fine With $60 Oil

Putin

Russia is comfortable with the current level of oil prices at around $60 a barrel, Russian President Vladimir Putin said at an investment forum on Wednesday, also thanking Saudi Arabia and its Crown Prince Mohammed bin Salman for the OPEC-Russia cooperation in managing the oil market.

Russia is comfortable with $60 oil, as its budget is balanced at $40 oil price, and for next year, that budget-balance oil price is calculated at $43 a barrel, Putin said today, a week ahead of the OPEC+ meeting in Vienna and just a few days before the G-20 summit in Buenos Aires, at which Putin is expected to meet separately with U.S. President Donald Trump and with the Saudi Crown Prince.

“We are now in contact with OPEC and if needed, we will continue this joint work,” Putin said, referring to the OPEC cooperation with non-OPEC nations led by Russia.  

Just two weeks ago, speaking to reporters about the OPEC+ deal, Putin said:

“As for the need to limit production or not, I will not say anything about this for the time being. We must be very careful in this respect because every word is important and affects the federal budget revenues. However, it is obvious that we should cooperate and we will cooperate.”

“About $70 per barrel suits us perfectly well considering that the expenditure side of our budget is based on $40 per barrel,” Putin said in mid-November.  

Now, according to Putin, even $60 is a comfortable oil price for Russia. Moscow has so far signaled reluctance to jump into a new production cut again just as it has raised its oil production to a post-Soviet high.

But this $60 oil is not as comfortable for Russia’s partner in the deal and OPEC’s de facto leader Saudi Arabia, which would prefer higher oil prices to balance its budget.

Saudi Arabia and its Crown Prince Mohammed bin Salman, however, are under pressure from U.S. President Donald Trump to keep oil prices low. The Saudis may not risk publicly announcing an oil production cut measured in millions of barrels per day, thus potentially angering President Trump who has stood by the Kingdom and the prince amid the international outcry over the killing of Jamal Khashoggi.

Putin’s remarks today also show support for the Saudi prince, while analysts think that the G-20 summit in Argentina may be the more important venue for the OPEC-Russia oil cooperation than next week’s full OPEC+ meeting.

By Tsvetana Paraskova for Oilprice.com

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  • EHLipton on November 29 2018 said:
    While I am okay with $60 oil,, it should be e lower,, we could go lower.. I no big what version desintivisation is,, I started y Plumbing career when a Journyman lic paid $24 an hour. 8 yrs later when I got mine it paid $10-11an hour. Ya gotta make a living,, were not God's or Kings,, 27 yrs total,, I was forced into retirement from injuries related to construction and an accident in 97. It still only paid a Self employed contract base price of $27an hr,, with bonds insurance continued Education classes and,, a required Master Lic. I still had incentive,, I liked what I did,, I also got to eat when I was very hungry,, unlike today.
  • Mamdouh G Salameh on November 29 2018 said:
    Indeed, since its diversification drive immediately after the 2014 oil price crash, the Russian economy could happily live with an oil price of $40 or less hence Russia’s hesitation about rushing to respond yet to Saudi Arabia’s call for a production cut by OPEC+. Moreover,the bulk of Russia's oil production is made by private Russian companies in which the State has a stake. Thy have invested heavily in the last few years particularly in the Arctic to enhance Russia's oil production and they want to recoup their investments pretty fast.

    On the other hand, Saudi Arabia needs a price far above $80 to balance its budget. However, the Saudis find themselves between a rock and a hard place. They feel obliged to cut production because they need a higher price. But they also need to respond to President Trump call for the Saudis not to cut production having stood by them in the tragic incident of the murder of the Saudi journalist. So they find themselves in a real dilemma.

    And despite analysts projecting cuts by OPEC ranging from 1 million barrels a day (mbd) to 1.5 mbd in its December meeting, nobody should bank on OPEC deciding to cut production. The overwhelming OPEC members could be against any new cuts. Instead, they will demand that Saudi Arabia and Russia withdraw the 400,000 b/d and 250,000 b/d they respectively added to the market and return them to the original 1.8 mbd cut under the OPEC/non-OPEC agreement. In so doing, the glut in the market will ease.

    Having made a grave mistake in June by adding 650,000 barrels a day (b/d) to the market, Saudi Arabia and Russia are not in a position to ask OPEC members for new cuts.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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