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Page added on December 14, 2014
Russia’s Energy Outlook Gloomy Amid Falling Oil Prices
While most oil-dependent economies are likely to suffer under the low and volatile oil prices predicted for next year, analysts paint a particularly dark picture for Russia, which is under the additional pressure of a faltering economy and Western sanctions over Ukraine.
At the end of last week oil traded at below $59 per barrel, hitting a new five year minimum. Oil prices continue to plummet from their peak in mid-2014 as supply exceeds demand, further buckling under OPEC’s decision in November not to curb production.
“Moving into 2015, we see downside risks to energy prices on the back of OPEC’s decision to allow the market to “stabilize itself.” This could result in lower oil prices but also higher price volatility,” Bank of America Merrill Lynch said in its commodities outlook released last week.
The bank reduced its 2015 Brent crude oil forecast to an average of $77 per barrel and WTI forecast to $72 per barrel.
Against the backdrop of falling prices, global oil supply and demand will likely stay in balance next year, according to the International Energy Agency’s Oil Market Report for December released on Friday.
Only in Russia will the plunge in oil prices, along with Western sanctions and a collapsing economy, result in a decline in both production output and demand, the report said.
The International Energy Agency revised Russia’s oil demand for next year down 5.5 percent, to 3.4 million barrels a day and production output down 70 thousand barrels per day, prompted by “price declines, sanctions and a falling ruble,” the agency said in a statement.
U.S. and EU sanctions over Moscow’s role in the Ukraine crisis have dried up foreign financing and helped spur inflation past 9 percent for 2014. The ruble has fallen over 40 percent to the U.S. dollar since January, buffeted by the falling oil price and geopolitical pressure.
Part of Russia’s oil production slump could be attributed to Russia’s biggest oil producer, state-owned Rosneft. Last month, Rosneft reported production output was decreased by 25 thousand barrels a day.
Production could be wound down further depending on the level of demand and oil prices, Igor Sechin, the head of the company, said in November.
Leonid Fedun, vice president of Russia’s biggest private oil producer LUKoil, earlier estimated that Russia’s oil production could decline 6.6 percent in the next four to five years, from the current 525 million tons per year to 490 million tons.
As conventional oil fields become depleted, producers in Russia are forced to tap into hard-to-reach reserves, which require both Western technology, currently unavailable due to sanctions, and higher level of investment. If oil prices continue on their downward trend, development of many of these fields will be economically unviable, further decreasing production output, analysts said.
“If oil prices stay below $65 per barrel for a prolonged period of time, development of many of these reserves will be hampered or even frozen, which will make Russia’s [resource-dependent] economy more vulnerable in the long run,” said Pavel Simonenko, sales director for Russia and the CIS countries at Dukascopy Bank, a Swiss Forex trading and investment bank.
Falling oil productions means less revenue both for oil companies and the government, which relies on oil exports for 40 percent of its income.
In the wake of a continued decline in oil prices and their increased volatility, Russia’s economy could contract by 0.7 percent in 2015 and grow by only 0.3 percent in 2016, according to the World Bank’s most pessimistic prediction, released last week.
“For companies in the natural resource sector, lower oil and commodity prices are expected to negatively affect investment decisions. For the first time since 2009, consumption is expected to decline, following a negligible expansion in 2014,” Birgit Hansl, World Bank’s lead economist on Russia said in a statement accompanying the report.
Russia’s economy could avoid recession next year if oil prices grow to $85 per barrel in 2015 and to $90 per barrel in 2016, which is the bank’s most optimistic scenario.
But most analysts did not expect the prices to climb this high in the near future, as global oil demand is unlikely to soak up the rising oil supply from the Middle East and the U.S.
21 Comments on "Russia’s Energy Outlook Gloomy Amid Falling Oil Prices"
Rodster on Sun, 14th Dec 2014 4:04 pm
It’s going to be even gloomier as per a Zero Hedge article, OPEC wants the price to drop to $40.
Davy on Sun, 14th Dec 2014 4:33 pm
Mak, is Moscow Times part of the U.S. MSM propaganda iron curtain?
Davy on Sun, 14th Dec 2014 4:51 pm
Hey Road, what part of the world you from? I will say welcome to PO but you may have been here longer than me. I enjoy your comments. Stick around.
JuanP on Sun, 14th Dec 2014 4:53 pm
“The first edition of The Moscow Times was published on October 2, 1992, with the paper founded by Dutch entrepreneur Derk Sauer.[5] The paper began as a twice weekly publication, before becoming a daily newspaper after a few months. Until 2000, it was based in the old headquarters of Pravda, and it was the first Western daily to be published in Russia.”
http://en.m.wikipedia.org/wiki/The_Moscow_Times
Apneaman on Sun, 14th Dec 2014 5:17 pm
What if the sanctions do break them, but instead of the corporate and neo con wet dream of them caving in they say “Fuck You” to the west and start turning launch keys?
JuanP on Sun, 14th Dec 2014 5:18 pm
This article is 100% Western media anti Russian propaganda BS. I will not waste my time correcting the many distortions and inaccuracies contained in it.
I read the Moscow times about twice a week and have been doing so for months. It is a Western propaganda tool, just like RT is a Russian propaganda tool. It is a newspaper purposefully created, probably by Western intelligence agencies, to promote a pro Western anti Russian perspective. I read it because I read all sorts of propaganda in my search for the truth. Like I always say, I am only interested in understanding reality better.
Global media sucks. I have been trying to read Uruguayan newspapers these past few months, and they are absolutely horrible. It’s getting harder and harder to dig the truth out of the mounting piles of propaganda BS.
Davy on Sun, 14th Dec 2014 5:27 pm
Juan, I read RT daily. I think RT does a good job compared to the usual western MSM.
I did not know the Moscow times was a western puppet, thanks for the heads up.
Davy on Sun, 14th Dec 2014 5:34 pm
That’s my thoughts AP, will a Russia backed into a corner decide to destroy BAU. Yet, no need to waste their precious NUKs just shut the energy valves to Europe. BAU will be in deep doo doo with any kind of energy disruption in any TBTF region. Europe is too big to fail.
Makati1 on Sun, 14th Dec 2014 7:06 pm
I suspect that any Russia action that seriously hurts the US, either directly or indirectly, will bring out the nukes. The powers that be know it is the end game. As most are over 70, they don’t give a damn about you or I or our families. It’s ALL about wealth and winning. A big game of Monopoly with countries instead of houses.
I read one story about the Russian’s pushing the button first when they were sure the US was about to push theirs. It is a game that can be “won” by who strikes first, even by minutes.
If the articles I have read recently about the condition of the US nukes is not BS, a successful US strike on Russia or China is not likely. Also, the US has no anti-missile system that can protect anyone totally. So, I guess we will have to wait and see …
Do you have a Geiger Counter and Potassium Iodide pills on your Santa list?
Davy on Sun, 14th Dec 2014 7:20 pm
Makster said – about the condition of the US nukes is not BS, a successful US strike on Russia or China is not likely
Ahh Mak, there goes that fantasy lust. When your supper heroes are dropping like flies you reach for the bottle of hopium.
Rodster on Sun, 14th Dec 2014 8:08 pm
If nukes start flying say goodbye to humans. Dr. Paul Craig Roberts posted an article by Steven Starr who’a an expert on Nuclear Warfare. He said just 1% of nuclear weapons used can be catastrophic for the planet.
The Lethality of Nuclear Weapons
“Nuclear war has no winner. Beginning in 2006, several of the world’s leading climatologists (at Rutgers, UCLA, John Hopkins University, and the University of Colorado-Boulder) published a series of studies that evaluated the long-term environmental consequences of a nuclear war, including baseline scenarios fought with merely 1% of the explosive power in the US and/or Russian launch-ready nuclear arsenals. They concluded that the consequences of even a “small” nuclear war would include catastrophic disruptions of global climate[i] and massive destruction of Earth’s protective ozone layer[ii].”
http://www.paulcraigroberts.org/2014/05/30/lethality-nuclear-weapons/
Rodster on Sun, 14th Dec 2014 8:18 pm
Here’s an audio interview with James Corbett and Steven Starr discussing the consequences of a small nuclear war.
http://www.corbettreport.com/?s=steven+starr
Davy on Sun, 14th Dec 2014 8:19 pm
Road, Mak, consistently comments on the ability of Russia and China to win a nuclear exchange with the U.S. Most people here with a brain know a NUK exchange would be catastrophic even like you mentioned a small exchange. I have never read a comment from Mak acknowledging this well known fact. I find that rather odd because he acts like an expert on nuclear warfare.
Makati1 on Sun, 14th Dec 2014 9:10 pm
“Russia Warns May Send Troops To Ukraine After Congress Unanimously Votes To Give Lethal Aid To Kiev”
http://www.zerohedge.com/news/2014-12-13/russia-warns-may-send-troops-ukraine-after-congress-unanimously-votes-give-lethal-ai
Got that bomb shelter built yet, Davy?
Do you really believe that the people in DC are rational? You are betting your life on a bad assumption, I think. Many close to the nuclear button believe that THEY can survive an nuclear exchange. They don’t give a damn if you do.
Apneaman on Mon, 15th Dec 2014 12:25 am
A small nuclear war? That’s like a small heroin addiction. Tell yourself you can stop before it goes to far. If you take out the electrical grid (EMP) in a country with nuclear power plants they will probably melt down along with the spent fuel pools. Bye bye grand babies.
Apneaman on Mon, 15th Dec 2014 12:37 am
Climate denier James Corbett, there’s your go to source.
Davy on Mon, 15th Dec 2014 4:48 am
Mak, no bomb shelter but I do have a tornado shelter under the cabin. Two people died three years ago less than a mile from my cabin from a tornado.
Mak, WHEN, did I ever say the DC thugs were rational? They are not stupid Mak. I doubt they want their riches to be incinerated. I want to direct that question back to you and your NUK gore lust. Are you rational Mak? Are your super heroes any less corrupted than the DC thugs? No Mak, sorry, your super heroes are just about as bad as the boys in DC/NY you hate so much.
Putt is a czar with a mafia organization of Oligarchs and Military brass. He is a nationalist and reported to be at least the richest politician in the world. He may be the richest man in the world considering he has significant control over almost all aspects of Russia. If you are looking for good and evil you are back into your sci-fi delusions from you fascination with Star Wars.
Mak, why are you linking ZH? You have repeatedly chastised me for going to ZH for info. You have told me this is part of the US MSM propaganda iron curtain. Are we whiffing of cat piss?
Boat on Mon, 15th Dec 2014 6:30 am
We should cut Russia from the free world finance system till they come to their senses. We need no guns to fight Putin.
Davy on Mon, 15th Dec 2014 6:49 am
Boat, Russia should cut the world off from their energy sources until they come to their senses. It works both ways friend. This is a marriage and like all marriages it is not about who is good or bad usually it is how have the two failed to get along. It takes two to tango and both have poop on their hands.
Rodster on Mon, 15th Dec 2014 7:30 am
“We should cut Russia from the free world finance system till they come to their senses. We need no guns to fight Putin.”
The Putin bogeyman is just as real as the U.S. GDP and unemployment numbers.
Davy on Mon, 15th Dec 2014 7:58 am
http://www.zerohedge.com/news/2014-12-15/despite-crude-bounce-russias-currency-crashing-intervention-rumors-halts-equity-trad
Putt is up to his ass in alligators. He is a crafty politician so it should be interesting to see what actions he takes next. Why not move on UKR and stir the markets up with some black swan magic. He has been given an escalation by the DC thugs. “OR”, would that be playing into the DC thieves’ trap? I have to hand it to the Russian people for their strength in adversity. If these economic shocks happened in the west the people would be raising hell. This is a very dangerous situation because the stability of Russia is a military issues as well as an energy supply issues especially for Europe. Russia is a TBTF node in the global cog. It demands close attention.
I am surprised the TPTB have allowed oil prices this much volatility. Risk and volatility is only good for the speculators and bad for everyone else. Could it be it is an acceptable price to pay to see Russia squirm? Do the idiotic economist think this oil price shock will be an economic boost? “OR” have the TPTB already shown their hand with the CRomnibus. That bill was a clear effort to shore up the banks for what is coming if oil prices keep dropping.
I wonder if the smack downs, ups, and slams will start when TPTB have decided enough is enough with the price movement. It is evident the TPTB are manipulating the market through market players. How is that for a spike deck? Could it also be a paralysis from competing power centers both domestically and globally turning this oil price route into a regular shit storm of control loss and policy malfunctions IOW market chaos. Exciting day’s folks to be on PO board.