Global oil prices and Russia’s economy

Like all other countries, Russia is interested in stable oil prices. Volatile prices play into the hands of speculators but do no good to either producers or consumers, Russia’s top economic analysts think.

Professor at the Moscow based Higher School of Economics, Leonid Grigoriev, says that low oil prices make companies reduce drilling for oil and stop investing in the exploration of new fields. Consumers get nervous if prices are overrated, which poses a risk of economic stagnation. Investors start focusing more on gas and renewable sources of energy:

"Now we are witnessing a slow and quite difficult recovery. No exporting country wants conflicts in oil cooperation, they all expect prices to remain stable. The market has been successfully responding to these needs. In 2009-2010 oil price varied between $80-100. In early 2011 the price reached $100 following reduced production in Libya and the Fukushima nuclear disaster. The average oil prices this year will be higher than in the pre-crisis times, allowing OPEC and Russia to earn more than in 2008. Global oil consumption is on the rise, positively affecting the production."

The head of the Institute for Energy Strategy Vitaly Bushuyev says that the market of oil futures, where prices are set, is part of the financial market, where a price is determined not just by demand and supply buy also by free capital. That is why prices vary so much these days:

"Oil market is overloaded today, so the price will sooner or later fall. Meanwhile the price remains high since there is a constant demand for oil and a huge amount of free money. We see that a peak price of $120 has already taken place, while at the end of the year we expect $80 per barrel as all resources that could have kept the price stable have been exhausted. The question remains whether this will happen at once or gradually."

Like Saudi Arabia, Russia is among the world’s leading oil producers. Russian companies have repeatedly said that they accept the price at $70-90 per barrel for it allows investing more in oil exploration. If prices grow, this offers a chance to earn more and save money or spend it on other purposes. However, too high prices are not welcome for they will result in a massive influx of dollars. In other words, Russia is interested in stable prices and lack of price fluctuations. Leonid Grigoriev says this is compulsory if we want a well-planned budget:

"Since the budget in Russia is approved by State Duma and President, what is said in this document is usually fulfilled. So I do not see any problem with oil price fluctuations. The budget is working already. But oil prices may affect the budget for 2012. The stronger these fluctuations are, the more cautious the Finance Ministry will be while discussing a draft budget."

Since oil prices rely on too many things, nobody can predict them precisely. One thing is clear: like the rest of the world, Russia expects oil prices to be stable.