bne:Chart - Is Russia's oil break even price for the budget high?

By bne IntelliNews October 23, 2014

Henry Kirby -

 

Recent estimates of break-even oil prices have painted a worrying picture for Russia’s fiscal future following a sharp decline in spot prices. Oil prices have lost 20% of their value this year and threaten to bring Russia's economy to its knees. Or do they? 

While Russia's new three-year budget breaks even with oil prices of $100, how does this stack up against other petrol producers around the world? According to Deutsche Bank's figures, all but three of the countries included in its estimates can expect to record a budget deficit for 2014, with their break-even prices sitting far higher than last week’s two-year low of $84 a barrel.

But with a break-even price of $100.10, Russia will have to gamble on the further decline of the ruble against the dollar to ease the burden of the fall in spot price. The ruble has already fallen by some 20% since January.

The budget estimates for oil prices are denominated in dollars, but the revenue it receives from oil taxes are paid into the budget. That means if oil prices fall, so long as the ruble/dollar exchange rate also falls, the budget receives more rubles and as budget spending is set in nominal rubles unadjusted for changes in the exchange rate, the devaluing ruble can compensate for the falling price of oil - at least as far as running a federal budget deficit is concerned. 

A longer-term prognosis predicts that Russia runs a deficit of 2.5% if oil prices remain around the $80 mark and the ruble value stays in line with current trends, forcing the Ministry of Finance to dip into its foreign exchange reserves.

Yet Russian reserves are the equivalent of some 25% of GDP and so the state has plenty of wiggle room compared most other major oil producers. With reserves amounting to only 1.4% of GDP and a break-even price of $162 – nearly double current prices – Venezuela, for example, is in a lot more trouble than Russia. 

 

(ED: use the pull down menu to change the parameters in chart below)

 

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss