Russia is budgeting its federal spending to expectations that oil prices will hover around $40 a barrel for the next several years, according to a new report by Bloomberg.
Such preparations go against predictions by international oil industry experts that barrel prices will rise to $60 and remain there over the long term. These forecasts are based on expectations that the global oil supply glut will reverse over the next couple of years, bringing prices up to a new normal, which will still stand far lower than the $100+ levels seen before the market crash occurred in late 2014.
A recent Bloomberg survey of oil analysts showed a 16 percent expected increase in the price of the Brent barrel, the international benchmark, by the end of the year led by production cuts by the Organization of Petroleum Exporting Countries (OPEC) and eleven other partner nations.
"The Finance Ministry, the cabinet and the central bank are leaning on the cautious side in terms of their expectations regarding growth, driven still to a large degree by oil," Piotr Matys, a currency strategist at Rabobank in London said of Russia's bearish market outlook. "It's better to be conservative and to be surprised on the upside than too optimistic and end up disappointed."
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On Friday, Russian policy makers predicted a $50 Urals barrel on average for the current year, with prices settling to a low of $40 by the end of 2017. The following two years will see stability at that level, according to the Moscow model.
"Once (actually more than once) bitten, twice shy," Elina Ribakova, an economist at Deutsche Bank AG in London told Bloomberg this week. "The central bank and the Finance Ministry are sticking to the conservative $40 oil scenario because they want to be ready for and protect themselves against the worst-case scenario."
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on… More
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Russia wishes to maintain a strident international presence. Bombs and support for questionable world leaders costs money.