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Russia basks in the oil price comfort zone ahead of OPEC+

As the world’s most powerful oil producers ponder further supply cuts, Russia has little incentive for a radical change as its energy revenue is strong, oil prices are higher than its forecasts and its budget deficit is narrowing.

Ministers from OPEC+, which groups the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, meet on Sunday in Vienna.

OPEC+ is set to consider whether to make additional oil supply cuts, three OPEC+ sources told Reuters with prices down by 16% since late September as crude output in the US, the world’s top producer, held at record highs, while the market was concerned about demand growth, especially from China, the No. 1 importer of oil.

“I don’t see any reasons to change something radically,” a source close to the Russian government said on condition of anonymity about the forthcoming OPEC+ meeting.

The source added that there was still a chance for surprises at the face-to-face meeting.

Saudi Arabia, Russia and other members of OPEC+ have already pledged oil output cuts of 5.16 million barrels per day, or about 5% of daily global demand, in a series of steps that started in late 2022.

‘COMFORT ZONE’

President Vladimir Putin says Russia has not simply survived but has prospered despite the West’s imposition of the most stringent sanctions ever imposed on a major economy, including a cap on the price of Russian oil at $60 per barrel.

After a contraction in 2022, Russia’s economy is forecast to grow by around 3% this year, faster than either the United States or the Euro zone, according to Russian forecasts.

Robust global oil prices this year and Moscow’s growing use of a shadow tanker fleet have meant that much Russian oil has traded mostly above the Western oil cap price.

Moscow-based independent oil analyst Alexei Kokin said the oil prices declined from “very comfortable” levels to “just comfortable” levels.

“That’s why, it looks like there is no special need for a move (for Russia). To leave the production restrictions as they are is an acceptable option,” he said.

Russia has budgeted the price of Urals, its flagship oil grade, at 4,788 roubles ($53.36) per barrel this year.

The Urals price on Friday fell below the Western price cap level of $60 per barrel amid a rise in freight rates fuelled by fresh US sanctions on shipowners and weaker global oil prices.

But it was still higher than 5,000 roubles per barrel and on Tuesday exceeded $60 per barrel again.

Budget plans published in September envisage Brent crude prices averaging $85 per barrel next year – more pessimistic than a Reuters poll forecast – and a Urals price of $71.30.

Russia’s budget deficit narrowed further last month thanks to higher oil prices, a lower rouble rate and an inflow of quarterly tax payments.

The deficit for the first 10 months of the year stood at 1.24 trillion roubles ($13.45 billion), or 0.7% of gross domestic product (GDP). That was far better than the initial plans for a deficit of 2.93 trillion roubles, or 2% of GDP for the whole 2023.

Oil and gas revenue in October was up 27.5% from a year earlier, although for the first 10 months of the year they were down 26.3%.

However, the share of energy sales in the federal budget proceeds – which used to exceed 50% of total budget revenue – has drastically declined.

In 2022 the share stood at 41.6% of total budget revenue, while in January-September of this year, oil and gas sales accounted for 28.3% of total proceeds of 19.73 trillion roubles ($220 billion).

Vladimir Soldatkin and Olesya Astakhova, "Russia basks in the oil price comfort zone ahead of OPEC+," Business recorder. 2023-11-22.
Keywords: Economics , Oil prices , Domestic product , Federal budget , Budget revenue , Gas revenue , Budget deficit , Oil supply , Vladimir Putin , Alexei Kokin , Saudi Arabia , Russia , OPEC

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