The budget lacks oil

At the beginning of a new week, Russian Urals oil prices fell below $60 per barrel for the first time in two years. The cost of Brent fell to a minimum since the beginning of the year, $81.5 per barrel. Against the backdrop of quarantine restrictions in China, as well as unjustified fears about the introduction of a price ceiling for Russian oil, investors are actively dumping accumulated surpluses of raw materials. The fall in prices is negative for the Russian budget, but so far the shortfall in revenues has been compensated by receipts from the NWF and OFZ placements.

The last week of November began with a collapse in the European energy market. According to Investing.com, on November 28, the cost of the nearest contract for Brent fell to $81.5 per barrel, the lowest level since January 11 this year. At the same time, Russian Urals quotes, according to Profinance, fell to $58.4 per barrel, the lowest since February 4, 2021. For two weeks, prices for European grades of oil fell by 17-20% in general. In the second half of the day, quotes won back part of the lost positions and consolidated near $83.4 per barrel of Brent and $60.3 per barrel of Urals.

Pressure on oil quotes is exerted by the difficult epidemiological situation in China.

Almost 40,000 new cases of COVID-19 infection were detected last Saturday, an absolute daily record for the country. As a result tightened restrictive measures in a number of major cities in China, including Beijing and Shanghai, which negatively affects the country’s economy. According to analysts at SberCIB Investment Research, the third wave of coronavirus could lead to a decrease in oil demand in China in the fourth quarter by 0.7 million bpd, to 15.1 million bpd.

In addition, fears of a lack of fuel supply due to the lack of an agreement on the supply of Russian oil have decreased in the commodity market. The G7 countries considered introducing ceiling prices in the amount of $65-70 per barrel, but could not agree on it.

Moreover, the EU has relaxed measures against tankers carrying oil above the ceiling – a quarantine period of 90 days instead of a ban on supplies to the EU. In addition to this, the US Treasury softened sanctions against Venezuela. Now the American Chevron has the opportunity to increase production in the country up to 44 thousand barrels per day.

Market participants note the expansion of the spread between Brent and Urals quotes to a maximum of 28-30%.

“The increase in the discount is most likely due to the imminent embargo and the growing uncertainty about how to work in the new conditions,” believes Dmitry Skryabin, portfolio manager at Alfa Capital. At the same time, Sakhalin oil Sokol has a spread of only $14. “OFAC excluded oil from the Sakhalin-2 project from the price ceiling for oil from the Russian Federation for deliveries to Japan until September 30, 2023,” SberCIB Investment Research analysts explain.

The recent fall in oil prices will have a negative impact on the Russian budget. Due to the weak influence on the foreign exchange market, the ruble value of Russian oil approached a two-year low – to the level of 3.77 thousand rubles. As a result, the average cost of Russian oil since the beginning of the year amounted to 5.5 thousand rubles. per barrel, which is only 10% higher than the average for last year. Given the increased spending, the budget will be executed with a noticeable deficit.

According to Mikhail Vasilyev, chief analyst at Sovcombank, the deficit will amount to 1.7-2 trillion rubles at the end of the year.

“For its financing, the Ministry of Finance has already allocated 1 trillion rubles. from the NWF, and due to the placement of OFZ since the beginning of the year attracted 1.56 trillion rubles,” notes Mr. Vasiliev.

The current prices pose a greater risk to the next year’s budget, which is drawn up on the basis of an average price of 4.8 thousand rubles. Such a high value, as noted by the head of the analytical department of Zenit Bank Vladimir Evstifeev, is due to the fact that restrictive risks are included in the calculations, in particular, a decrease in production by 7-8% is expected. As a result, the share of oil and gas revenues in the total volume of budget revenues will decrease from 42% to 34%. “It will be more difficult to replace oil exports to the EU and other countries against the backdrop of quarantine restrictions in China,” Mr. Evstifeev notes. However, even if the situation develops negatively, he does not expect a noticeable excess of the budget deficit over 2% of GDP.

Vitaly Gaidaev