$90 oil raises the stakes

As oil prices surged to $90 a barrel this week, raising fears of an a new economic meltdown in leading consumer countries, Russian analysts insisted that oil and the rouble will stabilise as Russian corporations are in their debt redemption cycle.

They said the economy could handle higher prices – but $150-per-barrel oil would trigger a new crisis.

Alexander Pasechnik, an independent oil analyst, said European refineries were already in trouble. “They find themselves in a ‘Catch 22’ situation, when consumers don’t want to buy gas at high prices from them, while suppliers don’t want to sell for less in a rising market,” he said.  

Pasechnik blamed speculation and “inflationary factors” for the recent rise. “The share of speculative contracts, not backed by the commodity on hand has reached 90 per cent.”

“Fundamental factors such as the growing world population and the low rate of replacement of hydrocarbons by alternative sources are driving oil prices up,” said Konstantin Simonov, director of Russian National Energy Security Fund, a think tank. Experts said that OPEC planned to increase quotas, but in three to four months the price would probably edge towards $100.

Natalya Orlova, chief economist at Alfa Bank, said high oil prices would help the federal budget, but over the long run. “The standard effect for Russia is $2 billion a year for the budget for each extra dollar on the oil price,” she said, but added that currency outflows would counteract this. “They are increasing as Russian corporates’ debts come due,” she said.

The Central Bank said in its report that the net capital outflow from Russia reached $9 billion in November ($300 million more than in October).

And Finance Minister Alexei Kudrin warned on Wednesday that the oil price could fall to $60 per barrel within the next three years for a period of about six months, negatively impacting the Russian economy.

By Oleg Nikishenkov.

The Moscow News, December 09, 2010.