Page 12 - RusRPTMay20

“Now it’s important to save the economy and the people, and nowadays the pre-crisis National Projects are fading into the background,” said MP Mikhail Schapov, member of the State Duma’s budget and tax committee. “These are long-term strategic projects, and in theory, this crisis should not affect them in any way. But everything will depend on how the global economy changes after the crisis. Perhaps, the goals and objectives of the National Projects will need to be corrected.”
“The crisis does not just provide an opportunity for economic restructuring, it rigidly dictates such restructuring as necessity. We already see the weaknesses of our economic model, its vulnerability and we understand that full-scale economic reforms are needed,” Schapov said. “The economy is primarily people and economic relations between them. We need to once again shift the focus of the bureaucratic apparatus to the interests of people,” the lawmaker added.
2.4 ​ ​Negative oil prices hurts Russian oil the least, but will lead to deeper production cuts
The plunge in crude prices puts significant pressure on Russian oil producers. The collapse in WTI May futures has led to significantly increased volatility in other global benchmarks. Brent front-month futures dropped to $16/bbl, Brent spot prices to $14/bbl and ESPO spot prices to $11/bbl, according to Bloomberg data in the days after WTI fell to -$37 on April 20. The Urals price has fallen below $9/bbl, according to Reuters Refinitiv.
Given that the market remains very oversupplied and that the OPEC+ deal will only take effect in May, Sberbank had assumed that April would be the most challenging month for Russian oil companies. However, the situation only continues to deteriorate, and at a rapid pace. Operating costs in the crude upstream are mainly in rubles, and the ruble has remained fairly resilient versus the dollar, which has resulted in upstream crude cash costs of $8-10/bbl, according to the bank’s estimates.
It is worth highlighting that the average realized price in the industry will be substantially higher than the Urals price, as Urals exports account for less than 30% of total Russian output, while the remainder is oil products (linked to Brent) and mainly lighter benchmarks. So, in normalized tax terms (i.e. without the lag in export duties) companies' margins should still be positive. However, April is particularly challenging due to the lag in the export duty, which is now around $7/bbl (based on a $50/bbl oil price) but should drop below $1/bbl in May.
The drop in ESPO spot prices has eroded most of Rosneft's tax-free margin for crude oil supplied via eastern routes (previously $3.3bn annually). While Sberbank had highlighted this risk earlier, the magnitude of the contraction is much more severe than the bank had anticipated.
All in all, while the plunge in oil prices is quite painful for Russian oil companies, it is even more so for most other producers globally. The entire sector has entered into survival mode.
“We believe that the crude production cuts are likely to accelerate in a major way across the globe and in OPEC+ countries in particular. The magnitude of the cuts could be far greater than what countries have agreed to,” said Andrey Gromadin and Anna​ ​Kotelnikova of Sberbank in a note on April 23.
12​ RUSSIA Country Report​ May 2020 ​ ​www.intellinews.com