At least one major nation producer attending the Organization of the Petroleum Exporting Countries' (OPEC) freeze talks this week has indicated that higher oil prices would be counterproductive to its own fiscal policies; in fact, Russia's economic future is said to revolve around crude prices at the $40 level, reported Ship&Bunker on September 26, 2016.
That's because according to Anton Siluanov, finance Minister of the Russian federation, the price of Russia's main export blend Urals at $40 a barrel will be used to calculate the country's budget in 2017-2019, and a fiscal mechanism that will go into effect from 2020 should be set at the same level.
«Plans can't be made under the assumption that prices will grow and demand for our products will rise,» he said, but make it clear that Russia was «not engaging in any limits or reduction in oil production.»
«On the contrary, we are currently creating new fiscal instruments in order to stimulate production in complicated conditions.»
Not surprisingly, Siluanov expressed profound ambivalence towards this week's freeze talks, by pointing out that «A freeze on the part of several countries ... will not produce the effect that some people are anticipating ... there is the possibility that there will be an increase in oil production as a result of shale oil and then the prices will fall again.»
He added, «For the time being, we haven't taken any decisions vis-à-vis freezes at an official level,» and he speculated that negotiations can perhaps be held at a business level without the need for government participation.
If predictions made by Harry Tchilinguirian, global head of commodity strategy at BNP Paribas, prove true, $40 oil is something the rest of the world should brace themselves to expect – at least in the short term.
Speaking to Bloomberg television, he noted that with regards to the freeze talks "it's going to be very difficult to find a collaborative solution" and said that in its immediate wake «a return to $40 and possibly below is a more distinct possibility than going above $50.»
It's not the first time Russia has been guilty of sending mixed signals prior to OPEC freeze talks: last year it indicated was ready for negotiations with OPEC; then a Russian spokeswoman declared that no such talks were imminent; and this was followed by Alexander Novak, energy minister for the country, insisting the talks were back on again.
