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Page added on March 26, 2017
Russia Prepares for Oil at $40
Perhaps the Bank of Russia knows something the world doesn’t.
As the Organization of Petroleum Exporting Countries and its allies prepare to meet for a review of their production cuts this weekend, the central bank of the world’s biggest energy exporter is hunkering down for years of oil near $40 a barrel.
While analysts in a Bloomberg survey see the price of benchmark Brent crude — which trades at a small premium to Russia’s Urals export blend — rising 16 percent from current levels by the end of the year, oil’s 10 percent decline in March alone amid supply woes is making the market nervous. Russia, a key partner in the deal and a participant in the talks in Kuwait, might only add to those jitters.
“The Finance Ministry, the cabinet and the central bank are leaning on the cautious side in terms of their expectations regarding growth, driven still to a large degree by oil,” said Piotr Matys, an emerging-market currency strategist at Rabobank in London. “It’s better to be conservative and to be surprised on the upside than too optimistic and end up disappointed.”
Policy makers in Moscow said on Friday they see Urals at an average of $50 a barrel this year, but falling to $40 at end-2017 and then staying near that level in 2018-2019. As the central bank honed its forecasts, it also gingerly resumed monetary easing, pointing to the “uncertainty” in the oil market as a factor for its “conservative” forecasts.
Russia’s Finance Ministry similarly highlighted the $40 level in January when it announced that the central bank will start buying foreign currency on its behalf when crude exceeds that level in order to insulate the exchange rate from oil volatility. The price of $40 is additionally being used to calculate the country’s budget in 2017-2019.
‘Upside Surprises’
Even as oil has recovered, Russia’s tendency to stick with the more conservative scenario is “positive” as it “leaves room for upside surprises,” according to Viktor Szabo, a bond fund manager at Aberdeen Asset Management Plc.
Forecasting oil is no game for the Bank of Russia. Its 65 percent plunge in 2014 and 2015 battered the nation’s currency, forced an emergency rate increase in the middle of the night and pushed Russia into recession. The share of oil and gas revenue was at 36 percent of budget income in 2016.
Even as the historic OPEC supply-cut deal helped halt oil’s collapse, pushing it up to $55 a barrel and setting the stage for Russia’s economic recovery, the central bank is taking nothing for granted.
The correlation between the ruble and oil has declined this year, falling to the lowest since August 2015, according to data compiled by Bloomberg. As crude slid below $50 a barrel this week, the Russian currency barely budged, weakening less than 1 percent, because its carry-trade appeal largely offset the dimming outlook for energy.
While OPEC won’t formally decide until May whether to prolong the deal, which lasts through June, officials will meet this weekend in Kuwait to discuss its progress. Oil will tumble to $40 if OPEC doesn’t extend its agreement later this year, one of the most prominent producers in the U.S. shale patch said this month.
“Once (actually more than once) bitten, twice shy,” said Elina Ribakova, an economist at Deutsche Bank AG in London. “The central bank and the Finance Ministry are sticking to the conservative $40 oil scenario because they want to be ready for and protect themselves against the worst-case scenario.”
47 Comments on "Russia Prepares for Oil at $40"
Midnight Oil on Sun, 26th Mar 2017 10:55 am
“I TOLD you so”, Bensen Burner Bozo Buster
LOL…can’t get any better…but it will!
Boat on Sun, 26th Mar 2017 11:13 am
Cutting oil production only gave shale a few extra bucks to expand faster. As a consumer of a global product who cares where it comes from. If OPEC/Russia decide to raise output $40 may be a little optimistic.
Northwest Resident on Sun, 26th Mar 2017 11:14 am
Perhaps the Bank of Russia knows something the world doesn’t.
More like, the Bank of Russia knows something that the rest of the financial and oil industry world also know but are terrified to admit.
twocats on Sun, 26th Mar 2017 11:20 am
I’d expect OPEC to continue the production cuts, at least until June, if not longer. At this point they are already flushing money into the shale patch and driving inflation into permian and oil services sector. might as well get everyone to go-all-in including banks that will be reviewing lines of credit this spring. have shale “cash in” (i.e. take yet another batch of losses) on oil at $50-70 in 2017-19, so that OPEC and Russia can take most of the pot on oil at $75+ in 2020 and beyond.
Boat on Sun, 26th Mar 2017 11:48 am
two cats,
Speculation is fun and harmless. Let’s say they don’t cut and the US just adds 700,000 to 1 Mbpd. Iran, Iraq, Lybia and Nigeria can easily add large amounts of production by 2020. Russia/OPEC may not be any better off in 2020 than they are now. There is just to much $50 oil around for the next few years let alone higher priced oil.
marmico on Sun, 26th Mar 2017 12:04 pm
Get it right, MO.
It’s Bozo Bunsen Burner Bedford, the Bloviating Blathering Blowhard.
GregT on Sun, 26th Mar 2017 12:47 pm
If Short is so wrong marmico, why the need to continually attack him? Anybody who has studied basic human psychology can see right through your emotional insecurities. They are glaringly obvious.
BobInget on Sun, 26th Mar 2017 12:47 pm
There’s no way current demand can be met unless
a fifty dollar minimum is met and kept.
twocats on Sun, 26th Mar 2017 12:58 pm
boat, I’d strongly disagree with you on the “to [sic] much $50 oil”. If that were true then I don’t think LTO would have lost as much money as it did when oil was averaging over $70 for 5 years. and above $50 for 9. and I don’t think so many companies would have gone into bankruptcy after just a year or two of low oil price if they were so profitable at $50. And even the majors were losing money after 2013 once you added in dividends. So I’d say you are almost certainly wrong in your analysis.
(from inflationdata.com)
2005 $50.04 $61.65
2006 $58.30 $69.64
2007 $64.20 $74.44
2008 $91.48 $102.00
2009 $53.48 $59.93
2010 $71.21 $78.65
2011 $87.04 $93.21
2012 $86.46 $90.72
2013 $91.17 $94.25
2014 $85.60 $87.05
2015 $41.85 $42.53
2016 (Partial) $34.39 $34.13
Northwest Resident on Sun, 26th Mar 2017 12:59 pm
GregT — Excellent observation, and one that I and most likely many others have made since the bloviating blow-hole first started spreading his stink here. Whether due to deep inner need to deny reality or due to that $5.00 per hour wage the blow-hole might be earning, either way, there is an ulterior motive at work. Everybody sees it, so why the blow-hole wastes time is anybody’s guess.
GregT on Sun, 26th Mar 2017 1:00 pm
There’s no way that economies can recover from the global financial crisis without much lower oil prices.
twocats on Sun, 26th Mar 2017 1:01 pm
first column is nominal price, second is inflation adjusted to august 2016. take your pick.
GregT on Sun, 26th Mar 2017 1:03 pm
NWR,
People don’t go out of their way to discredit or attack others, unless they feel threatened by them. Basic human psychology.
Boat on Sun, 26th Mar 2017 1:06 pm
greggie,
Conversation on this site is a full contact sport. You for example spend more time hurling insults than adding anything of substance. Short has a long history of insulting anyone who challenges his doomer nonsense. When you dish it out, take the response like a man. Try facts for a change.
GregT on Sun, 26th Mar 2017 1:14 pm
twocats,
It should be rather easy to see where the wheels went off if you go back to 1986 with the same dataset. The 80’s recession is also glaringly obvious.
Year Nominal Price Inflation Adjusted Price
1946 $1.63 $19.80
1947 $2.16 $23.27
1948 $2.77 $27.76
1949 $2.77 $28.02
1950 $2.77 $27.73
1951 $2.77 $25.70
1952 $2.77 $25.13
1953 $2.92 $26.23
1954 $2.99 $26.82
1955 $2.93 $26.31
1956 $2.94 $26.07
1957 $3.14 $26.90
1958 $3.00 $25.04
1959 $3.00 $24.79
1960 $2.91 $23.72
1961 $2.85 $22.96
1962 $2.85 $22.69
1963 $2.91 $22.90
1964 $3.00 $23.30
1965 $3.01 $23.00
1966 $3.10 $23.01
1967 $3.12 $22.53
1968 $3.18 $21.99
1969 $3.32 $21.81
1970 $3.39 $21.04
1971 $3.60 $21.42
1972 $3.60 $20.74
1973 $4.75 $25.56
1974 $9.35 $45.60
1975 $12.21 $54.61
1976 $13.10 $55.46
1977 $14.40 $57.20
1978 $14.95 $55.24
1979 $25.10 $82.51
1980 $37.42 $109.51
1981 $35.75 $94.83
1982 $31.83 $79.50
1983 $29.08 $70.34
1984 $28.75 $66.67
1985 $26.92 $60.27
1986 $14.44 $31.72
1987 $17.75 $37.62
1988 $14.87 $30.33
1989 $18.33 $35.60
1990 $23.19 $42.62
1991 $20.20 $35.73
1992 $19.25 $33.04
1993 $16.75 $27.94
1994 $15.66 $25.44
1995 $16.75 $26.48
1996 $20.46 $31.40
1997 $18.64 $27.98
1998 $11.91 $17.60
1999 $16.56 $23.89
2000 $27.39 $38.29
2001 $23.00 $31.30
2002 $22.81 $30.52
2003 $27.69 $36.26
2004 $37.66 $47.98
Things started to go south around the turn of the century, right before 9/11, and subsequent illegal invasions of both Afghanistan and Iraq.
https://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp
Boat on Sun, 26th Mar 2017 1:18 pm
two cats,
Where are they drilling now. The permian is the only area rapidly growing. The rigs started coming back at $40 and at $50 much faster.
Midnight Oil on Sun, 26th Mar 2017 1:25 pm
Marmico, too bad that is the ONLY thing you can right! LOL…what a clown…
Now we’re are Rockhard and 2pussies?
GregT on Sun, 26th Mar 2017 1:32 pm
Sorry, didn’t mean to go so far back. Anyhow, after the US peak in 1973 prices became much more volatile, and the one income family became a thing of the past. The 1980s recession was a big one and is clearly reflected in the above data.
twocats on Sun, 26th Mar 2017 1:32 pm
many oil companies locked in hedges when oil touched to $55, so they can start drilling and know that they are protected (at least for a while) at $50.
In addition, it’s hard to say if they’ve learned their lesson.
Another theory/contributing factor, they want to sucker investors – “come on in, the water’s fine”. I’m not saying there won’t be an increase of oil drilling and production for the next couple of years at $50 – 70, but IF YOU READ MY POST (for the first time maybe) you will see that I think this will be a fairly unprofitable endeavor. I’m not sure if the numbers are easily discoverable, but there’s already a certain percentage of shale oil that’s being produced in bankruptcy. I.e. it’s continuing to be produced even though the shareholders have already taken a significant haircut. I’d claim you really don’t understand the situation, which is odd because you are on this site A LOT and post A LOT.
twocats on Sun, 26th Mar 2017 1:36 pm
no your point is well taken, at least by me Greg. Looking at the data it is easy to see the early, mid, late rumblings of POD. Too bad the continual nay-sayers on this blog just can’t open their eyes for more than a few seconds to see it. It’s not surprising, just sad.
Davy on Sun, 26th Mar 2017 1:41 pm
GregT on Sun, 26th Mar 2017 12:47 pm
If Short is so wrong marmico, why the need to continually attack him? Anybody who has studied basic human psychology can see right through your emotional insecurities. They are glaringly obvious.
Greg, I know I attack Makati regularly. My reasons are simple he attacks me directly and indirectly. Call that an emotional issue. I am going to say it is a little bit that mixed with self defense. What I can’t see is how you can say the above and still attack boat and planter even without reciprocity. The attack is always your initiation.
GregT on Sun, 26th Mar 2017 1:42 pm
Denial runs rampant twocats. Also basic human psychology.
GregT on Sun, 26th Mar 2017 1:46 pm
Boat,
“You for example spend more time hurling insults than adding anything of substance. ”
The reasons for my insults towards you are obvious. I have provided you with endless substance, and you choose to ignore all of it.
If you prefer to act out of sheer ignorance of the facts, and continue to play your childish little games, (just like planter) I will continue to call
you out for being the mindless moron that you are.
observerbrb on Sun, 26th Mar 2017 2:12 pm
“His doomer nonsense” that has been more accurate than 99% of MSM and their pundits.
Give me a break, Boat. Shortonoil has been right so far, and if this article is true, he ‘ll be right for another year.
Cornucopians (our governments and the Stablishment) will be blamed when the whole thing falls apart, and it won’t be pretty.
Boat on Sun, 26th Mar 2017 3:19 pm
two cats,
Are you saying bankrupt companies are drilling wells? Bankrupt companies continuing to produce oil is normal if the wells have already been drilled and fracked. Most of the cost has already been spent by pumping time.
Boat on Sun, 26th Mar 2017 3:27 pm
Observer,
Short’s claim of oil/economic collaspe has a 3 year time frame. 1 year and almost 3 months has passed. Short, you and the other idiots have 1 year and 9 months. I the clock and will remind you as time marches on. We’ll see once again who is right.
observerbrb on Sun, 26th Mar 2017 3:48 pm
Short has an OPINION about a possible collapse.
However, Short DOESN’T have an OPINION when it comes to oil prices. He developed a model, the model could fail or not (not discussing this obvious fact). What I am just saying is that right now the model is holding, and no one can say the opposite.
I was just calling you out for saying that his model was “non-sense” – well, we don’t know yet.
GregT on Sun, 26th Mar 2017 4:00 pm
Boat,
Read Short’s report or STFU. All you do is spread disinformation and complete mindless nonsense.
From BW Hill’s report:
“2030 will be the year that a discontinuity appears on the P140 curve. It is when the
average barrel of crude will have reached the “dead state”. After that date petroleum will no longer
act as a primary energy source. This determination is derived from the calculation of the maximum
attainable Second Law Efficiency (SLE) for 35.7° API crude.”
And you ask why I continue to bash you. You are a liar, and full of BS. Fucking moron.
GregT on Sun, 26th Mar 2017 4:08 pm
If you would open your eyes Kevin, you would be aware that many economies around the world have, for all intents and purposes, already collasped. (SIC)
The process is already well underway.
onlooker on Sun, 26th Mar 2017 4:15 pm
Amazing Greg, how some even on this site are refusing to grasp the full and irresistible downward pull of the trajectory we snared ourselves in. I do believe it is willful rather than lack of intelligence
GregT on Sun, 26th Mar 2017 4:35 pm
Personally, I don’t consider willful ignorance to be a shining beacon of intelligence onlooker. More like a lack of intelligence.
GregT on Sun, 26th Mar 2017 4:41 pm
Oil bust even worse than thought, according to new data
Houston Chronicle-March 14, 2017 8:24am
http://www.houstonchronicle.com/business/article/Oil-bust-even-worse-than-thought-new-data-shows-10999265.php
Sissyfuss on Sun, 26th Mar 2017 4:42 pm
But Greg, how do you really feel?
GregT on Sun, 26th Mar 2017 5:06 pm
Sorry for the confusion Sissyfuss, in the future I’ll do my best to be less ambiguous.
Boat on Sun, 26th Mar 2017 5:50 pm
greggiet,
The crying, knashing of the teeth, the pulling of your hair. Bless your heart your pain will pass down the line when you will simply admit you were wrong.
I have not read the hills report and have no interest in it. Short told me personally there would be an oil industry collaspe by 2019. He went on to say the worlds oil derricks would be covered in cobwebs all due to low prices that would never recover. He also said the worlds economies would collaspe because of oils problems. I do not twist shorts words and have repeated them many times. In 1 year and 9 months he claims this will have happened.
Your version of the hills group may be quite different. Who knows, who cares. Tell me what you believe greggiet, put a date on it, grow some balls. An overall feeling of collaspe someday for countless reasons is just silly. Hey that kind of talk does let you be in the doomer club of hypocrites that live in the very systems you disdain.
observerbrb on Sun, 26th Mar 2017 6:03 pm
“I have not read the hills report and have no interest in it”
Stopped reading here.
makati1 on Sun, 26th Mar 2017 6:18 pm
Oily prices go up.
Oily prices go down.
Who cares?
Maybe people like Boat whose whole life seems to be entwined with the industry. Me, let it go to $200 tomorrow. I would enjoy the crash after. Or let it drop to $20 and again watch the pain as big oil goes out of business, taking all of the Wall Street leeches/suckers with it.
What will be, will be. I’m just glad I have nothing invested. I can sleep at night. lol
GregT on Sun, 26th Mar 2017 8:26 pm
Kevin,
“Short, you and the other idiots have 1 year and 9 months.”
Short isn’t here, and who are ‘the other idiots’ that you would be referring to? Do you assume that because Short supposedly said something to you, that everybody else automatically agrees with what he may, or may not have said? More nonsense.
If you had a conversation with Short where he told you that the world’s economies and oil production were going to collaspe (SIC), in 1 year and 9 months, that would be between you and Short. I find that very hard to believe however, considering the amount of work that he has done on the ETP model, and that your claim completely contradicts his work.
“Your version of the hills group may be quite different.”
My version of the ‘hills group’? I have read the HIll’s Group report. You have not, and apparently have no interest in doing so. If you refuse to read it, how in your feeble little mind do you believe that you have any basis on which to critique it? More nonsense.
“Tell me what you believe greggiet, put a date on it, grow some balls.”
WTF does belief have to do with anything? I don’t have the foggiest idea, and neither do you. If you would at least read the header at the top of this page that says “Exploring Hydrocarbon Depletion” then you would understand why most people come here. If you don’t believe that hydrocarbons will eventually deplete, and have no interest in current or future events, then why do you continue to post your nonsense here?
“Hey that kind of talk does let you be in the doomer club of hypocrites that live in the very systems you disdain.”
I seriously doubt that anybody here is overly excited about the direction that this is all heading in. Climate change, ocean acidification, loss of biodiversity, species extinction, overpopulation, societal unrest, and economic stagnation/collapse are not good things. They are extremely troubling, they are unfolding as we speak, and they are very real. If you do not want to think about the future ramifications of the above, then again, why are you here? There are plenty of more comforting places for you to spend your time. Go play in your pool, boil something to eat, or watch a football game. Life’s too short to worry about putting others down about stuff that you don’t believe will ever happen.
Apneaman on Sun, 26th Mar 2017 9:45 pm
Boat, you, like so many others, do not understand the definition of hypocrite. Have you ever actually looked the definition up? Obviously not. You keep repeating things you hear, yet never verify. Too bad there was not some kind of global mass communication/knowledge base device that was connected right to your house that you could use for such purposes.
Boat if there was a smoker who had been diagnosed with lung cancer and was still smoking and told some teenagers not to smoke because it could give them cancer, would that make the smoker a hypocrite?
I have a couple extra dictionaries if you would like for me to send you one, so you could be less confused.
Apneaman on Sun, 26th Mar 2017 10:13 pm
Looks like they finally came up with a scientific explanation for Texas.
Heat exposure associated with mental illness
https://www.sciencedaily.com/releases/2017/03/170321123641.htm
makati1 on Sun, 26th Mar 2017 10:17 pm
Perhaps Boat does not realize he is a hypocrite. He is surrounded by them in the U$ and it may seem natural to say one thing and do another and not even recognize that it is not rational. America points a finger, but does not realize that it is as guilty, or more so, than what it is pointing at in other countries.
Boat on Mon, 27th Mar 2017 3:11 am
greggiet,
Short made that prediction several times. As far as assuming short has supporters one only has to read their comments. This is the type of thinking that comes from you where you deny what is commented right in front of you. Short’s etp has been a widely discussed for at least 1 1/2 years. Your just weird boy.
I jumped on shorts idea of collaspe by 2019 as a statement of fact only because I think that kind of talk is bat shyt crazy. Just like I don’t read the bible to know humans evolved and there is a problem with the idea of creation.
The idea of continued dropping of oil prices leading to collaspe defies any kind of common sense. The history of commodities shows us a lack of a desired product causes prices to go up. It’s a simple tried and true concept.
Boat on Mon, 27th Mar 2017 3:27 am
Ape,
Of course the smoker is a hypocrite. Just like fat people telling me what I should eat or an environmentalist flying to a rally to explain the dangers of pollution from flying. Do you know what a hypocrite is? You don’t get a free pass because your concerned about something.
Davy on Mon, 27th Mar 2017 6:29 am
I am in firm agreement with the Hill Group ETP to a point. It fails beyond a point like those who think they have climate change figured out. Humans and their equations don’t have complexity figured out especially when it approaches the turbulence of systematic decay. Where the ETP fails is it cannot model for the human civilization. The current human civilization makes oil what it is. Oil allows the current economy.
You can’t just model oil and expect to know where the human economy is going. You can get another perimeter of decline from the ETP. There are multiple others that show human civilization is in a paradigm shift into a collapse process. Many an economist, central banker, and political pundits has tried to figure out what makes this modern human experiment in civilization. All have failed and are failing. Do you see the Fed and global governance figuring it out currently? With all their talent and expertise at their fingertips and what is occurring? What is occurring is accelerated decline from micro managing a process that cannot be managed. This process can only be rode like a surfer rides a wave.
Shorts ETP is a fine example of the most recent force within a group many other peak oil dynamic forces. All these forces are at work and continue so. What is also at work is a civilization in broad based systematic decline politically, socially, and economically. Combine the above with that a planetary system in decline and localized failure and then you see the absurdity of it all. No model or super computer can touch that. I am not dismissing his model I am just attaching caveats.
onlooker on Mon, 27th Mar 2017 7:24 am
Davy, your narrative makes sense and certainly many wrinkles, unforeseen events and atypical scenarios will play out along the peak oil dynamic/depletion timeline. As you concede the Etp makes sense. So details will be unknowable just like climate change. However, like climate the basic frame work and trajectory is set out. Economies and the Oil Industry will drag each other down to the bottom. And like climate change it appears now irreversible
Davy on Mon, 27th Mar 2017 7:29 am
I agree onlooker.
rockman on Mon, 27th Mar 2017 8:53 am
mak – “Or let it drop to $20 and again watch the pain as big oil goes out of business”. Buddy, you don’t seem to grasp the dynamic. If oil fell to $20/bbl and holds there for a significant period of time BIG OIL reserves will grow by leaps and bounds as LITTLE OIL is forced to divest. Remember, regardless of how low oil prices go those DEVELOPED bbls in the ground don’t disappear…just the owner changes.
And as those DEVELOPED bbls deplete and fewer new bbls are developed oil prices will eventually increase. Of course if you think the world will have little use for oil in the next 5 to 10 years the that huge wealth transfer to BIG OIL won’t be as profitable. But it will still generate a profit: proved producing oil reserves today is being bought for less then $20/bbl. Imagine what it would be selling for if prices were $20/bbl.
Oh, wait, you don’t need to imagine: oil fell to $20/bbl or less in the late 90’s. And one company (a relatively small LITTLE OIL…Hilcorp) had been buying proved producing reserves throughout the decade. By the late 90’s it was probably paying $6 or $7 per bbl. And how did that play out for the company’s owner, Jeff Hildebrand? In addition to his personal wealth growing to $4 BILLION as oil prices recovered he did spread it around to his employees:
“Despite the oil bust, in 2015 Jeff Hildebrand gave each of the 1,400 employees at Hilcorp Energy a $100,000 bonus to thank them for their help doubling the size of his company in five years and making it the biggest privately held oil and gas company in America. Hildebrand founded Hilcorp in 1990 with the idea of buying up old oilfields and using technology to squeeze out more profits. In Alaska, his Hilcorp has been acquiring and reviving mature fields in the Cook Inlet and the North Slope. Hildebrand’s biggest payday came in 2011, when he turned a $100 million investment in the Eagle Ford shale into $1.8 billion with a sale to Marathon Oil.”
And understand the $100 million he invested in the EFS came from his huge increase in revenue as a result of selling oil for $20 to $30 per bbl. Oil he bought for less then $10/bbl.
This dynamic is nothing new: it happened after the price bust in the early 80’s. Remember back then there were 2 BIG OILS…Exxon and Mobil. And eventually there was one…ExxonMobil.
Everyone needs to remember: an oil company’s profitability IS NOT a function of the price of oil. It’s solely a function of the difference between what it cost them to develop its reserves and the price it sells that oil. Buying oil for $7/bbl and selling for $20/bbl produces a nice profit.
And selling it for $45/bbl (the current “low price”) generates an “obscene profit”. LOL.