Page 5 - MEOG Week 16

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export blend averaged just over $19 a barrel between March 15 and April 14, according to the Finance Ministry.
The oil-production tax, the so-called MET, is based on a monthly average Urals price, and is also declining sharply. While the level for April is yet to be determined, the March one, based on the Urals price of $28.95, reached just $6.70 per barrel, which is the lowest since January 2016. Some fields enjoy tax breaks, so the actual MET budget revenues per barrel are even lower.
The record-low crude-tax levels are alarming for Russia, which gets around 40% of its total revenues from oil and gas, and is facing billions in extra spending to cushion the economic effects of lockdowns around the globe to curb the spread of coronavirus. A reduction in reve- nues is what the Kremlin wanted to avoid when it agreed to make new, unprecedented output cuts as part of the deal with the OPEC and other producers.
President Vladimir Putin, who only in March rejected Saudi Arabia’s proposal to deepen OPEC+ production cuts by 1.5 million barrels a day, last week agreed to take the overall reduc- tions to almost 10 million barrels a day.
In a painful climb-down, Russia agreed to reduce its crude production in May and June to a level last seen in 2003.
The Russian cuts of 2.5 million barrels a day will be a “tremendous challenge” for the nation’s oil industry due to difficult geological condi- tions, Oxford Energy analysts said in a research paper published last Monday.
While the OPEC+ deal will contribute to stabilizing the oil market, the fall in demand is so great that there is “no feasible agreement that could cut supply by enough” to offset it, the Inter- national Energy Agency said Wednesday in its monthly report.
The IEA expects global storage facilities to
run out of space by this summer, while demand may see the biggest annual collapse this month.
The weakness in physical crude markets is putting pressure on the price, and for Russia’s budget it means one thing: it may have to with- stand extra-low oil revenues beyond May.
saudi spending spree
Earlier this month, the Wall Street Journal reported that Saudi Arabia’s sovereign wealth fund – the Public Investment Fund (PIF) – had been buying stocks in European oil majors, including Shell, Eni, Equinor, and Repsol, with the total price paid for all four stakes coming in at $1 billion. The fund, interestingly enough, was supposed to be the primary investment vehicle on Saudi Arabia’s journey to economic diversifi- cation away from oil.
In addition, the fund has also bought a stake in cruise operator Carnival and became a part- ner in the group that bought English soccer club Newcastle for $375 million (300 million pounds). And it seems its buying spree is far from over.
“The Saudis have been buying every day almost for the past few weeks, especially since the share prices of many of these [oil] compa- nies were in correction territory and dividend yields were very high,” one unnamed source told Reuters.
Saudi Arabia was the country that fired the starting pistol in what everyone came to see as an oil price war between Riyadh and Moscow after the latter refused to join oil production cuts in early March.
In the current context of crippled demand, those deeper cuts would have been a drop in the ocean, as Gazprom Neft’s CEO put it recently, but at the time, Russia’s move sparked Saudi anger, which led to the latter deciding to flood markets with crude. Naturally, oil tanked.™
Week 16 22•April•2020 w w w . N E W S B A S E . c o m P5