Vladimir Putin Says $50 Oil In 2016 "Too Optimistic" #Russia #commoditytrends #oilprices

By 17th December 2015 Industry News No Comments

Russian President Vladimir Putin said Thursday that the $50/bbl price assumption factored into the country’s 2016 budget was too optimistic and that the government may need to cut the federal budget. “We had calculated next year’s budget based on $50 per barrel. This is a very optimistic valuation today. Now it’s already $38. That’s why we will have to correct something there,” he said at his annual televised news conference.

Putin: $50/bbl “Very Optimistic”

He tried to reassure Russians that the peak of the economic crisis had passed. However, the government’s expectations for 0.7% economic growth next year and 1.9% growth in 2017 were based on assumptions of a $50/bbl oil price. Still, Russia will not rush to alter the budget, Putin said.

Referring to oil prices, he said, “Volatility is very high…We won’t rush with recalculations and making adjustments in the budget, because that brings with it a reduction in the volume of financing for social spending, the nonfinancial sector.”

The plunge in oil prices has hit Russia hard, as oil accounts for about half of federal budget revenues. The government is seeking ways to address the budget gap, which Putin has ordered should be no more than 3%, including increased local borrowing or potential sales of state assets.

Putin lent his support to the central bank, saying interest rate cuts cannot be forced and must be moored in economic reality. He added that while other countries are challenged by the threat of deflation, Russia’s principal threat is inflation. Measures should be enacted to reduce inflation to allow the central bank to reduce rates, he said.

Finance Minister: Russia Is Prepared For Much Lower For Longer Prices

Last week, Russia’s Deputy Finance Minister Maxim Oreshkin said he sees no reason for oil prices to rise above $50/bbl in the near future, and expects prices to remain in the $40-60 range for at least the next seven years. But Russia is prepared to withstand these lower for longer oil prices, he said, and the country has assumed this price range in its budget next year.

“In our estimates, one should hardly expect any serious growth of the oil price above $50. The oil industry is changing structurally and it may happen that… the global economy will not need that much oil…Therefore, we see a range from $40 to $60 somewhere for the next 7 years. And these are the prices we should base our macroeconomic policy on,” he said.