This page has been archived and commenting is disabled.
Oil Slumps As Saudis "Won't Change" Policy, Russia Rethinks 2016 Price Forecast
On Tuesday, we took a close look at the forecast for the Russian economy given various assumptions about the price of oil in 2016.
While Russia has thus far managed to weather the crude storm relatively well (indeed, Moscow is now pumping more crude than ever before and expects oil exports to rise for the first time in six years in 2015), the numbers do not lie.
The ruble is plunging in the face of the oil price slump and if prices hit $30/bbl, the country’s budget deficit is expected to balloon from 3% of GDP to some 4.4% - that would be the second largest deficit in two decades. Indeed, the Russian central bank itself says that in an adverse scenario wherein oil trades at $35/bbl in 2016, GDP will contract by 5% and inflation will run at 7-9%. Say what you will about the country’s penchant for resilience, but that isn’t a pretty picture. The rumored return of former FinMin Alexei Kudrin to the government is evidence of Moscow’s attempts to find a solution sooner rather than later.
The interesting thing about Russia’s budget for 2016 is that it’s based on oil prices of $50/bbl. It’s not entirely clear how realistic that is.
For instance, the Saudis are likely basing their 2016 budget on considerably lower prices.
As we outlined in great detail earlier this week, Riyadh is expected to run a 13% deficit in 2016. That's actually in line with expectations and comes on the heels of a better than expected 2015 when the red ink somewhat inexplicably came in at between 15% and 16% of GDP as opposed to the 20% the market was expecting. That’s bad news for prices as it means the Saudis are holding up better than most observers anticipated. Riyadh can thus continue its war of attrition with the US shale complex for longer.
Also, remember that Saudi Arabia came into 2015 with virtually no debt, which means they can borrow to offset the SAMA burn. At $30/bbl, Saudi Arabia could hold out for nearly two years with no subsidy cuts and more than 3 years as long as they finance 50% of spending in the debt market. Now that the subsidy cuts are a reality, those figures rise materially:
Here are some estimates from various analysts regarding what price Riyadh is likely assuming for 2016 based on the budget released this week:
- Deutsche Bank: Revenue for 2016 is projected at USD137bn (-15% YoY) due to lower projection on oil price (USD36.5/bbl assuming no increase in non-oil revenues).
- Citi: We think the government’s revenue forecast is based on a Brent price of $40 per barrel in 2016.
- BofAML: Budgeted revenue numbers would be consistent with an internally budgeted oil price assumption of cUS$45/bbl on our estimates, and the budget itself would breakeven at cUS$80/bbl.
- Riyadh-based Jadwa Investment: $29/bbl.
Meanwhile, we learn on Wednesday that Kuwait is expecting crude revenue of 7.16b dinars in 2016/2017 budget which translates to around $30/bbl, according to Alrai newspaper.
Given all of the above, one certainly wonders if Russia’s $50/bbl projection is realistic. Sure enough, it looks as though Russia may lower its estimate. “Russia may cut its oil-price estimate for the 2016 budget next year, possibly following other crude-exporting nations as the commodity, which makes up about 40 percent of the country’s budget revenue, nears 11-year lows,” Bloomberg reports, citing the Russian Finance Ministry. Here’s the official word from Finance Minister Anton Siluanov:
“We should be ready for any oil price developments -- our estimates for next year are for about $40 a barrel for budget calculations. We’ll prepare proposals to review fiscal plans at the end of the first quarter if the situation doesn’t change.”
If Citi is correct, every $10 move in crude translates to around 0.7% on the deficit for Russia and believe us, the Saudis are happy to press the issue. Case in point: just moments ago, the kingdom’s oil minister Ali al-Naimi told reporters that his government's production policy "is reliable." "We won't change it," he added.
And in case that wasn't clear enough, he continued: “We will satisfy the demand of our customers. We no longer limit production. If there is demand, we will respond. We have the capacity to respond to demand."
The result:
So "lower for longer" it will be.
The only question is which country's populace rises up first. The Russians, struggling under persistently high inflation and a plunging currency, or everyday Saudis, who just had the subsidy punchbowl pulled away.
»
- 112 reads
- Printer-friendly version
- Send to friend
- advertisements -
Is that a gay pride Saudi pic?
Now that's funny...
Remember, every Thursday is "Man Love Thursday" in the Dar-Al-Islam!
http://www.bouhammer.com/2010/01/and-you-thought-i-was-lying-about-man-l...
SOLUTION: JUST Rename Saudi Oil To Isis Oil...
My bet's on the Russian people to tough it out over the goat fuckers.
When push comes to shove, I'm confident that Putin will turn Saudi Arabia into a gigantic fused-glass parking lot.
My bet was on Russia to not back down in Afghanistan in the 80s, but they left after 8 years in utter defeat.
Must be part of the vaunted Russia "long game"!
They didnt leave after defeat idiot stop posting yoir rant and get your facts corrected.
Saudis screwing Russia at the behest of the Nobel Prize Winner.
The USSR collapsed when the Saudis reduced the price of oil to under $10 a barrel in the mid-1980s.
Now Russia is losing nearly $1 billion a day in revenue due to lower oil prices
The Oil Coup US-Saudi Subterfuge Send Stocks and Credit Reeling
U.S. powerbrokers have put the country at risk of another financial crisis to intensify their economic war on Moscow and to move ahead with their plan to “pivot to Asia”.
Here’s what’s happening: Washington has persuaded the Saudis to flood the market with oil to push down prices, decimate Russia’s economy, and reduce Moscow’s resistance to further NATO encirclement and the spreading of US military bases across Central Asia. The US-Saudi scheme has slashed oil prices by nearly a half since they hit their peak in June. The sharp decline in prices has burst the bubble in high-yield debt which has increased the turbulence in the credit markets while pushing global equities into a tailspin. Even so, the roiled markets and spreading contagion have not deterred Washington from pursuing its reckless plan, a plan which uses Riyadh’s stooge-regime to prosecute Washington’s global resource war.
http://www.globalresearch.ca/the-oil-coup/5420293
Falling oil prices and the plunging ruble are not some kind of free market accident brought on by oversupply and weak demand. That’s baloney. They’re part of a broader geopolitical strategy to strangle the Russian economy, topple Putin, and establish US hegemony across the Asian landmass. It’s all part of Washington’s plan to maintain its top-spot as the world’s only superpower even though its economy is in irreversible decline.
http://www.globalresearch.ca/did-the-u-s-and-the-saudis-conspire-to-push...
Seems like a game of chicken where the U.S. shale-debt underwriters have been involuntarily "ante-d" against Putin .gov.
At least the Mickey-Ds in Calgary can find workers again (eh).
Hi JO,
Saudi will implement taxes, privatisation, issue bonds...the works....then their reserves will finish in th enext few years and ultimately will have to de peg from the dollar (and break the circular motion of the petro dollar) because both US and China are buying about 35% less oil from Saudi over the last several years....
Taxes can never replace the oil revenues...but can certainly push the can down the road for a year or two.....partly thanks to the large USD 650 billion reserves that they still have as on date.
Saudi 5-year plan to include privatisation, taxesWe also have this.
These 3 charts tell you everything you need to know about how Saudi Arabia spends its money
Saudi Arabia To Drop Dollar Peg? Amid Slumping Oil Prices, Kingdom Could Reduce Budget DeficitThe Saudi's are running this game. They can stop anytime they want and let the price of oil rise.
There are different opinion's of what is actually going on. Are the Saudis attacking oil shale and oil in the US/Canada in general or are the Saudis attacking Russia For the US/NATO? If they are acting on behalf of the US then they will be assisted with air drops of money - and they have been promised a huge payday once Russia falls again like Russia did in the 80's/90's.
The Saudis have limited room to work with. A few years back they increased social spending in order to bribe the masses not to go all "Arab Spring" on them. And you say they can raise taxes? Don't think so.
One major problem with starting a war and screwing it up is that it can cause major social unrest. Ask the Romanov family, who went from being Russian Czars to murder victims in part due to Russia's poor performance in WWI. From what I can tell, the Saudi troops in Yemen should return home very pissed off. Add in a split royal family, and I believe we are seeing the end of days for the House of Saud. Russia will continue to be Russia come hell or high water. The Russians aren't as spoiled or as soft as the Saudi population.
Maybe someone changes the Saudis?
However, the ruble / USD rate is adjusting favorably to minimise internal losses. Fortunately for Russia, the year or so of sanctions prior to the oil price war have encouraged the internal market to develop. Local foods are also free of GMO contamination.
I don't see an internal market for food etc developing in Saudi Arabia. Desert soils are not naturally productive. They need lots of energy expenditure for desalination, fertilisers, etc.
This is really funny. The ruble has crashed and continues to crash. The Putin fan club then claims having a nations currency crash is good for that nation. So they claim if the ruble declines from here by Another 50% that is WINNING! If the ruble goes to zero then Putin can take over the world because everything is freee for Russia.
You're an idiot ! Every currency devalued this year against the USD. The Canadian loonie lost 25% in 2015. Canadian revenues depend in higher proportion on oil & commodities exports but I don't hear any "pundit" expecting a demise of the Candian government. The Russians can devalue all they want, as long as they don't need to pay their imports in dollars. Most of their imports come nowaday from China, and since last summer they can pay for them in yuans... WE are the screwed ones, as this oil price collapse killed the few remaining well paid jobs in this country ! On top of it, the high dollar is killing our industry (what's left of it). Just check what happened with CAT over the last couple of years.
The decline in the Canadian loonie has had a negative effect on the Canadian people and economy. It is starting to become a problem for the citizens.
The decline of the russian ruble has been much more severe. And is continuing. And no, Russia cannot "devalue all the want" without the citizens suffering. (Even China forces Russia to accept their foreign currency.)
The oil price collapse killed a running bubble of sorts. The fracking/oil/NG industry was in bubble like frenzy and was hammered. Just wait to see what $90 oil does to what is left of industry, tourism, cash available for nonessentials, food prices in the US.
CAT is an excellent example of how competition has increased at th same time demand has dropped off the cliff. China is not in the same construction boom cycle nor is the US.
Keep claimings the ruble going to down another 50% is such a good thing. Consider - does Russia have laws preventing foreign investments? If not, then the economic hitmen are going to decend into Russia and buy up all the good things about it. Why not, they can get it for a fraction of the value. Seeing as how the Putin fan club claims the as the ruble goes to zero prices and wages in russia will remain the same price (in rubles) the foreign agents can buy it up, take economic control and gian influence or Russia. Just like they did in the 80's/90's.
You're seriously delusional if you believe that Western capital can freely pray on Russian companies as it used to do under Yeltsin. The main advantage of a controlled economy is that it is, well, "controlled". You could as well dream of foreign capital taking over China. Ain't gonna happen ! What could happen though is that some Russian institutions could be "advised" to selectively default on their Western debt. Kind of what Ukraine decided to do with its Russian debt; after all, what's good for the goose...
At some point the Russians and the Saudis will have to pay the piper. It's a game of chicken.
On zerohedge, that have Putin-gasms, so you will not received well.
What if the west is playing both countries against each other to make them end in rubble?
By that time, the "shale revolution" (together with its retarded "tar sands" cousin) will be long dead... Enjoy the show !
Zero Hedgers don't need logic. All they need is your Fan Club dollars.
Maybe your logic is faulty, hence rejected...
They seem to have forgotten that Russia has allies too. China especially. China could do a 21st century lend lease if war breaks out.
Would that be the China that is now part of the FED banking system?
Wake me up when all the US mid to small size oil/exploration companies file for chapter 11.
Brew some joe. May not even get to power-nap through that one...
WOW in that photo : the boyzz of the band!
And they play the thumbs down song!
Putin will lose the wheels off his ruble!
Screw Saudi Arabia. We should just stop shipping them Apple products. And goats.
-Argenta
So, the Saudi's are going for broke. Ok then...
Someone should remind the Saudi's alot can happen to dogshit.
yes, and unlike a saudi, dog shit eventually turns white and quits stinking
Markets.. Must... Be... Green....
The call has been made to the EIA to fudge their inventory numbers, so that the Algos can crush the shorts and drive the S&P to green for the year.
nice pipelines and loading docks you got there, saudi boy. shame if something were to happen to them. now about your oil policy...putin.
shia in gulf states might not like you screwing with their price for oil.
long oil, cause greed and violence go hand in hand.
Noooooooooooooooooooooooo!
http://www.forexpf.ru/chart/usdrub/
73 RUB for 1 USD
http://www.nooooooooooooooo.com/
So what world does not revolve aroundd US. Inflation rate is normal in Russia. Unless you want to believe in Bloomberg crao then its up to you instead of following genuine ground zero facts. Cant fix the stupid.
And my coincident downside leading indicator, Ag, is just 2 more bad 4% down days from a 6 year low in the 12s:
http://finviz.com/futures_charts.ashx?t=SI&p=d1
Keep stacking: Cash.
I <3 cheap gas.
Due in large part to Vlad's over-reliance on oil and his over-reaching military, the ruble has now breached 73/dollar. At least we know who has the better fiat currency, huh?
The ruble will soon be rubble!
The more important is to have trade surplus and limited ruble inflation.
A multi-week bad 2016 start and we could see PMs and crude dressed to the nines: $999 Au, $9 handle Ag, $29 crude, and 99c gas.
Rush to get your copy of Mr. Putin's "Words That Are Changing the World: Key Quotes from Vladimir Putin"! It's required reading by members of the Politburo and rubber-stamp Duma. And let's face it, if you plan on surviving 2016 without a terrible "accident" befalling you or your family, you best have this gem on your desk.
JUST Imposed steel tarrifs to protect American steel - WINNING....... While OIL imports from the zio-terrorist Whabs flood America. Terror and 9/11 in every tank you dip-shit "muricans" ....
IT REALLY IS ALL ABOUT THE IMPORTS, STUPID. The Houthis have a few tac rockets to spare, please target:
Ras TanuraThe Saudis have probably peaked and are producing as fast as their geology will allow. Once they start declining, it will be an interesting time as they start to selloff those magnificent skyscrapers for scrap. Don't worry about oil prices. They'll be back.
One or two megatons to Riyadh will clear up things a lot
I bet one cruise missle in the right place, could cut saudi oil output in half.
Think what three would do.
I think one would sent oil to $100.
A large porrtion of saudi oil lies within shiite majority areas;uprisings could severely disrupt output;Tehran & Moscow are undoubtedly aware of this....
Saudi boys chorus line?
What we need here on Zero Hedge is more of what the Russians call "Reklamki" - more advertisement pop-up boxes, more adverts in the left and right margins, etc. Ideally, the center comment column would be no more than an inch wide.
Remember - Zero Hedge donates half of all proceeds to Vlad's Western Union account.
Putin needs to discretely fund the opposition to the House of Saud {internally}. They are despised by most of the Arab world, as they are seen for what they are {The USA's whore}.
Progress in the development of renewables could be fragile, however, if fossil fuel prices remain low for long. Renewables account for only a small share of global primary energy consumption, which is still dominated by fossil fuels—30 percent each for coal and oil, 25 percent for natural gas (see Table). But renewable energy will have to displace fossil fuels to a much greater extent in the future to avoid unacceptable climate risks. Unfortunately, the current low prices for oil, gas, and coal may provide scant incentive for research to find even cheaper substitutes for those fuels. There is strong evidence that both innovation and adoption of cleaner technology are strongly encouraged by higher fossil fuel prices. The same is true for new technologies for mitigating fossil fuel emissions.
http://blog-imfdirect.imf.org/2015/12/02/the-price-of-oil-and-the-price-...