Russia swiftly reacts to bloodbath in markets, ready for $25 oil
…from Russia Today, Moscow
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– First published … March 09, 2020 –
Despite Monday being a public holiday in Russia, both the Ministry of Finance and the Central Bank were quick to react to the overnight drop in oil prices of nearly 30 percent. The former said that the Russian National Wealth Fund has $150 billion (more than 10 trillion rubles) worth of liquid assets from additional oil and gas revenues, which is enough to offset a possible shortfall from falling crude prices for 6-10 years.
The oil market turmoil dragged down Russia’s national currency, which fell sharply against the US dollar and the euro. The ruble slid about eight percent, trading at 74.1 to the dollar on Monday morning. Against the euro, the ruble was at 84.4, its weakest since late February 2016.
The Central Bank of Russia announced that it is temporarily halting foreign currency purchases on the domestic market under its fiscal rule mechanism. The regulator said the 30-day pause is aimed at reducing financial market volatility, adding that it is ready to take up additional measures to ensure the country’s financial stability. The resumption of operations will depend on the how the situation develops in March.
Before the members of OPEC and allied oil producers met last week, Russian President Vladimir Putin said that while Moscow must be prepared for any scenario, it has enough reserves to stay afloat even if the situation continues to deteriorate. At that time, however, crude prices were higher.
Russian Finance Minister Anton Siluanov earlier said the Russian economy could withstand an oil price of about $30 per barrel, but noted that it wouldn’t be optimal for balancing the budget.
Last week, OPEC agreed on deeper production cuts to boost oil prices amid the coronavirus outbreak, but Russia refused to support the initiative, recommending prolonging existing cuts. As a result of the disagreement, the current deal expires next month, creating the risk of additional oversupply in the market, which is already bracing for reduced imports by coronavirus-hit China, one of the main importers of oil.
In a shock announcement on Sunday, Saudi Arabia said it wants to increase oil production instead of cutting it, and also offered a discount for buyers of its oil. The move was seen as the start of a price war, triggering massive losses in global benchmarks Brent and WTI.
Jim W. Dean is VT Editor Emeritus. He was an active editor on VT from 2010-2022. He was involved in operations, development, and writing, plus an active schedule of TV and radio interviews. He now writes and posts periodically for VT.
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When I grew up in the 40’s-50’s gasoline followed cigarettes; about 20 cents/gal and 20 cents/pack. We normally bought $1.00 worth of gas or 5 gallons. The first self serve stations opened up in about 1950. After the pump cut off we always drained the hose and left quickly. In about the later 1950’s gas began to rise in price. Yesterday I paid $1.95/gal at Sam’s Club. I am told it is about $4.00/gal in California. Don’t you feel sorry for them out there? Just imagine if gas returned to 20 cents/gal again! It could happen. Henry Ford was the genius who made the decision to power the automobile by the gasoline engine instead of the steam engine or electric engine. If we had had a century of development of the steam engine as applied to the automobile as we have had with the gasoline engine, we would be energy independent today. The steam engine can be powered by burning almost anything. It has very high low end torque so a fancy transmission is not necessary. Electric engines are now receiving attention.
New developments in Hydrogen production will also begin to lower demand for oil. Gains in Hydrogen production by a factor of 25 will also flatten oil prices.
We in Florida live on a geologic formation similar to a soda cracker. Lunatics were proposing fracking here!!
The shale people are all highly leveraged. So they will go under and their equipment set aside to see if things rebound enough to start back up before the equipment has to be written off.
It costs less than ten dollars a barrel to produce oil in the most expensive fields. The cost to the consumer should reflect this; however it does not.
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