Page 14 - FSUOGM Week 11

FSUOGM
NEWS IN BRIEF
FSUOGM
RUSSIA
Russia has to slash its oil
prices to keep European
market: Fitch
Russia will have to reduce its oil prices for Europe by a significant margin not to lose
its market share to Saudi Arabia, Dmitry Marinchenko, director for natural resources and commodities group of international rating agency Fitch, told PRIME on March 13.
“Europe accounts for about a half of Russian oil exports, and Russian companies will have to cut prices significantly to keep the market share,” he said.
Lower demand in China because of the coronavirus is also an important factor. “But the major problem is not in direct competition, it is the inability of Saudi Arabia and Russia to agree on a production cut during a market glut and falling demand, which will push prices down,” he said.
Russia and Saudi Arabia failed to agree on prolongation of the OPEC+ oil output reduction deal after April 1 as Riyadh demanded a deeper cut of output from Russia, while Moscow wanted to wait
for a bit and assess the real impact of the coronavirus on the global economy. Reuters reported that Saudi Arabia wanted to squeeze Russia out of its major markets by offering its oil at lower prices.
March 13 2020
Russian oil producers
prepared for drop in prices,
but no strategy yet
Russian oil producers have pledged to remain resilient and continue stable operations at oil prices as low as $8-10 per barrel, RBC business portal reports after the meeting of the heads of Lukoil, Gazprom Neft, and Tatneft with the Minister of Energy Alexander Novak.
As reported by bne IntelliNews, shares in Russia’s top oil and gas firms tanked on March 9, in the wake of Moscow’s decision to reject an oil production pact with Saudi Arabia.
In the meantime the head of Lukoil
Vagit Alekperov, Russia’s second-largest oil producer, told RIA Novosti after the meeting that no concrete proposals on oil prices
were put forward at the meeting and the government “will consider various strategies on the oil market.” Other oil and gas majors participating included Novatek, Irkutsk Oil Company, as well as representatives of Russia’s largest crude producer, state-controlled Rosneft.
Rosneft was quick to announce it would boost output free from the Opec+ constraints. After the meeting with Novak, Gazprom Neft also announced that it could increase output as of April 1 by 0.045mn-0.05mn barrels daily.
“Russian companies can ensure sustainable production until oil hits $15 to $20 per barrel,” Karen Kostanian, Bank of America Moscow- based oil and gas analyst, told Bloomberg ahead of the meeting.
“It’s not the first time that crude falls,” Alekperov was cited by Bloomberg as saying, adding that “we are used to operating in a volatile environment.”
raising taxes.
At the same time, Saudi Arabia is capable
of running a wider budget deficit, absorbing the shock to its finances instead of accepting slower growth, according to Bloomberg Economics, which projects the fiscal shortfall of the kingdom may rise this year to $86bn, or 11.1% of GDP at an oil price of $40.
“Saudi Arabia is trying to aggressively win market share but it cannot run this war for long,” Christopher Dembik, global head of macroeconomic research at Saxo Bank, told Bloomberg. “At the end of the day, looking at the fiscal situation, Russia is clearly in better position.”
March 13 2020
Russiaseenaswell-poised March132020
in oil price with Saudis
Russia is seen as well-poised for the oil price stand-off with Saudi Arabia, due to the floating ruble currency rate, flexible fiscal policy, and low extraction costs, Bloomberg wrote on March 12. Russian oil producers pledged to remain resilient in the new price environment, separate reports showed.
As reported by bne IntelliNews, Russia’s decision to withdraw from the Opec+ agreements crashed oil prices, with Saudi Arabia pledging to flood Europe with oil as cheap as $25 per barrel aiming to dilute Russia’s market share.
Analysis by bne IntelliNews showed that Russia has made enormous progress since the last time oil prices collapsed in 2014 and the Ministry of Finance is sanguine about the outlook for growth and spending this year.
While Saudi Arabia has lower per barrel extraction costs and more oil reserves than Russia, “a flexible exchange rate puts Russia at an advantage versus other commodity exporters at times of oil-price swings,”
Elina Ribakova, deputy chief economist at the Institute of International Finance told Bloomberg, adding that “Saudi Arabia has its hands tied [with riyal]”.
According to the Finance Ministry, Russia gets RUB70bn ($969mn) in extra income
for every RUB1 decline against the US dollar relative to the exchange rate used to draft the budget, while the effect is similar for Russian oil producers, whose expenses are mostly in local currency whereas revenue is in dollars.
“Low oil prices will leave a smaller hole in the budget for Russia than for Saudi Arabia, and reserves are ample enough to fill it. But the buffers aren’t limitless, and the price shock will still be painful.” Russia’s Finance Ministry boasted that it could hope with oil price as low as $25 per barrel for the next decade, while economists surveyed by Bloomberg believe that the there are about 3 years of sovereign reserves buffer, until the government will
have to face the choice of curbing spending or
EASTERN EUROPE
Ukraine makes its first gas
transit between two EU
countries
Ukraine has acted as a transit country for a shipment of gas travelling between two EU countries for the first time, the country’s Gas Transmission System Operator of Ukraine (GTSOU) said on March 16.
The gas was shipped via Ukraine from Hungary to Slovakia, making it the first time that Ukraine has serviced gas transit between countries of the European Union, head of GTSOU Serhiy Makogon said as cited by Interfax Ukraine.
“The spread of coronavirus (COVID-19) will not stop the further development of the gas market. We continue introducing new services and look for new opportunities
of using the powerful Ukrainian gas transmission system. For the first time,
we serviced gas transit from Hungary to Slovakia,” he wrote on his Facebook page on Monday.
A German energy trader ordered the gas transportation.
“The volumes are still not very large, but we are confidently developing the East European gas hub,” Makogon said.
March 17 2020
CENTRAL ASIA & SOUTH CAUSASUS
Analysts gauge Azerbaijan’s
budget woe in wake of oil
price crash
Analysts are debating how Azerbaijan will
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Week 11 19•March•2020