Russia expects three more years of cheap oil prices
Oil prices will be hovering around $40-60 per barrel in 2017-2019, the Russian Finance Ministry’s Main guidelines for 2017-2019 debt policy said.
"The oil price dynamics will still be one of the key risks for the Russian economy over the projected period. Given the global demand and supply trends oil prices are expected to hover around $40-60 per barrel in the mentioned period," TASS cited the report as saying.
Earlier, Russian Finance Minister Anton Siluanov said that the Russian government took the price of $40 per barrel for budget plans for the years 2017-2019.
Sberbank CIB analyst Valery Nesterov, speaking to Vestnik Kavkaza, said that in the next three years $50 per barrel will be a guide for prices for Russia's Urals crude oil. "In this regard, our expectations are quite consistent with the Finance Ministry's expectations, as at $50 per barrel of Urals, Brent will cost about $52 per barrel. In theory, the price could fall below $40 per barrel, although the chances are small. In particular, there are predictions that the process of shale wells drilling will become more efficient, and thus cheaper, which will greatly undermine global oil prices. The factors of price increases, in particular, a new round of tensions around Iran, will continue to operate," he said.
Valery Nesterov stressed that from the point of view of fundamentals, the era of high oil prices was passed. "It is unlikely that there will be high rates of world economic development, therefore, the demand for oil will grow at limited pace. In particular, there is a point of view that in the early 2020s demand growth may stop. We do not share this opinion, but in any the case, now there is still more oil in the depths than we need. but it is unlikely that the price will decline below $40 per barrel, because that is in nobody's interests," the analyst drew attention.
"For oil consumers there is also little benefit from it, because they are interested in a certain stability. As for oil price above $60 per barrel, from time to time it may increase over the limit in the next year or two, due to some extra events or, for example, an extreme weakening of the dollar. But in general, $40-60 per barrel in the three-year term is a healthy benchmark, corresponding to the majority of forecasts," the expert concluded.
A senior analyst of 'Uralsib Capital', Alexei Kokin, evaluated the Ministry of Finance's forecast as relatively conservative. "The fact is that the current price level is much closer to the upper end of the range than the bottom. Accordingly, we can say that forecasters rather bet on the decline than rise," he said.
"Today many in the oil market share the view that the rise in prices above $60 per barrel will require major disruptions in production or the efficient growth of the world economy. Not so much OPEC, as US production of shale oil is becoming the regulatory factor in the market, which can add about 700-800 thousand barrels per day to the current output level - that is what will happen if the price starts to increase above $60. On the other hand, the risk of a long-term decline below $40 does not seem real, because OPEC has already shown its ability to reduce the release of oil into the market. During several months, there can be any hesitation at small intervals, but in general, the Ministry of Finance is giving a fairly reasonable calculation of risk in terms of oil price increasing above $40-60 per barrel, which is very low," Alexei Kokin noticed.