A month and a half ago I wrote about the fact that Russia defeated its opponents in the oil war unleashed by Saudi Arabia.
At that time, however, there were only trends from which such a conclusion could be drawn. They have now been backed up by concrete figures. However, these very figures were predictable and not surprising.
About everything in order:
Brent oil is getting more expensive. At the time of writing, its exchange value is $39.19, and the Urals brand is $37.73.
However, the price of Urals is constantly fluctuating. Sometimes it exceeds Brent, sometimes, as it is now, it’s slightly lower. It depends on how much of its heavy oil Saudi Arabia throws on the market. However, the reduction of production by the kingdom only affected heavy varieties, as they do not withstand competition with Urals. Therefore, most of Saudi Arabia’s exports are light Arab Light oil.
This was the reason for the sharp strengthening of Urals. Let me remind you that a month and a half ago it traded at a price of minus $12-15 compared to Brent. Sometimes it even reached minus $20. Now, as we can see, their cost is about the same.
But that’s not even the point. The main fact for the Russian economy is the following. Our budget is formed from an oil price of 2,600 rubles per barrel. In this case, it is deficit-free. Anything greater than this figure is sent to the National Welfare Fund (NWF).
Today, the ruble price of oil has returned to this level:
This means that the Russian budget is again deficit-free. Of course, tax revenues fell very much due to the events that took place in April-May, but this was compensated by the transfer to the budget of profits from the deal with Sberbank.
What’s going on in Saudi Arabia? It’s really bad out there. The kingdom spends its reserves at an enormous speed. In just two months (March, April), reserves fell by 10% from $500 billion to $450 billion.
At the same time, in order to improve the situation in any way, Riyadh raised VAT from 5% to 15%, and also refused to pay social benefits. Saudi Arabia needs oil at a price of at least $60-65.
The US also continues the gradual bankruptcy of shale companies. The reduction of operating rigs has reached its highest level since 1940. If the WTI price does not rise above $55, it will not be possible for the US shale market to recover. However, those American companies that produce conventional oil do not suffer so much. Yes, they have reduced investment and in the first or second quarter the profit will go to minus, but they will survive this crisis. Currently, US oil production is 11.4 million b/s. As of March, this figure was 13.1 million b/s.
There is another positive point for Russia. The price of oil shows a tendency to strengthen. On June 4th, an OPEC conference will be held, and during it the first phase of the agreement is likely to be extended.
In principle, Russia does not benefit as much from extending the first phase of the agreement as the Saudis and Americans. We can profit from the increase in the price of oil by increasing production. But the fact remains that our budget is in the plus in any outcome.
Konstantin Dvinskiy
Copyright © 2022. All Rights Reserved.