While the world’s most powerful oil producers are considering further supply cuts, Russia has little incentive for radical change, as its energy revenues are high, oil prices are higher than forecast and the country’s budget deficit is decreasing, writes Reuters in its analysis.
Ministers from OPEC+, which brings together the Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia, are meeting in Vienna on Sunday. During the meeting, the organization will consider whether to make further cuts in oil supplies, sources told the news agency.
Crude oil prices have fallen 16 percent since the end of September as output in the U.S., the world’s top producer, held at record highs. At the same time, the market is concerned about demand growth, especially from China, which is the #1 importer.
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“I don’t see any reason to change anything radically,” a source close to the Russian government said on condition of anonymity about the upcoming OPEC+ meeting, adding, however, that there is still a chance for surprises.
Saudi Arabia, Russia and other OPEC+ members have already committed to cutting oil production by 5.16 million barrels a day, or about 5 percent of daily global demand, in a series of steps starting in late 2022.
President Vladimir Putin believes Russia is not just surviving but thriving despite the toughest Western sanctions ever imposed on a major economy, including capping the price of Russian oil at $60 a barrel.
After contracting in 2022, Russia’s economy will grow by about 3 percent this year, faster than the United States and the euro zone, Russian forecasts show.
Stable world oil prices this year and Moscow’s increasing use of “shadow fleets” of tankers mean that much of Russia’s oil trades mostly above the cap imposed by the West.
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Moscow-based independent oil analyst Alexey Kokin told the news agency that oil prices have fallen from “very comfortable” levels to “just comfortable”:
“That’s why there doesn’t seem to be much need for drastic moves for Russia. Leaving the production restrictions as they are now is an acceptable option.”
Russia has budgeted a price for Urals, its leading oil grade, of 4,788 rubles ($53.36) a barrel this year. On Friday, its price fell below the Western-set limit of $60 a barrel amid a rise in freight rates, fueled by new US sanctions against shipowners and lower global oil prices. However, it remained higher than 5,000 rubles per barrel, and on Tuesday again exceeded 60 dollars per barrel.
Income for Russia
Russia’s budget deficit narrowed further last month thanks to higher oil prices, a weaker ruble and an influx of quarterly tax payments.
Russia’s deficit for the first 10 months of the year amounted to 1.24 trillion rubles ($13.45 billion), or 0.7 percent of gross domestic product (GDP). This is far better than the initial expectation of a deficit of 2.93 trillion rubles, or 2% of GDP, in 2023.
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Oil and gas revenues in October were up 27.5% from a year earlier, although for the first 10 months of the year they were down 26.3%.
But the share of energy sales in federal budget receipts – which used to exceed 50% of total budget revenues – is dramatically declining. In 2022, it amounted to 41.6% of total budget revenues, while in January-September this year, oil and gas sales accounted for 28.3% of total revenues amounting to 19.73 trillion rubles ($220 billion) .
Russia remains a superpower in the field of natural resources
By all accounts, Russia remains a superpower in the field of natural resources. The country is in first place in the sale of grain in the world, and at the same time it exports fertilizers and other agricultural raw materials. Its other main sources of budget revenue are value-added tax, an extraordinary tax of 300 billion rubles, as well as other additional taxes.
“The Russian budget is more sensitive to oil prices and the ruble exchange rate than to oil production, so the country will be inclined to support current oil production targets while crude trades between $75 and $100 per barrel.” , believes Ronald Smith, senior analyst at BCS World of Investments in Moscow.