Oil price unlikely to go down to $60 per barrel - Russian Finance Ministry official

The oil price on the international market is unlikely to drop to $60 per barrel, although it may go down for some time to $80-$85, but should stabilize around $90, says Russian Finance Ministry long-term strategic planning department head Maxim Oreshkin.

The oil price on the international market is unlikely to drop to $60 per barrel, although it may go down for some time to $80-$85, but should stabilize around $90, says Russian Finance Ministry long-term strategic planning department head Maxim Oreshkin.

"I don't really believe in $60. What looks more realistic is $90, and we already talked about this level. When oil cost $100, we said that $90 was the level where it could stabilize. It goes without saying that we could drop to $85 or $80 for a short period of time, but we will orient ourselves at $90 in the midterm," Oreshkin told journalists.

To make forecasts regarding oil prices, it is important to understand the causes of and the nature of price shocks, Oreshkin said.

"We don't really believe in oil costing $60 per barrel for a long time, because the difference between the oil situation now and the 2008 situation, when we dropped to $40, is that that was a cyclic drop caused by a cyclic drop in demand due to the global crisis. Oil dropped and then quickly rebounded. Now we see more structural reasons, including growing oil production in such countries as the U.S. and Iraq and the restoration of oil [production] in Libya. These reasons are to stay with us for a long time, and therefore we are likely to see some decline in oil prices, which has already happened. We won't see a sharp fall, but we won't see a sharp rebound either," he said.

If the oil price remains at the current level, which is lower than the basic price of $96 per barrel used in drafting the 2015 budget, the use of the Reserve Fund could be started in line with the budget rule, Oreshkin said. In making a decision on whether to use the Reserve Fund, it will be necessary to analyze the budget revenues, the exchange rate, and the general economic situation, he said. "Our desire will be to use as little as possible. When we propose some decisions, we will look not only at the 2015 situation but also at the midterm trends, taking into account the drafting of the budget in the period up to 2018," he said.

The federal budget has different safety levels in case of a significant decline in oil prices, including 70 billion rubles from the anti-crisis reserve remaining from the current year, the transfer of budget residues from 2014, which could double this sum, and the right to use the Reserve Fund, which is designed precisely to support the implementation of budget expenditures in case of a decline in oil prices, Oreshkin said.

"We have such a situation now, and therefore we can use the Reserve Fund. The budget envisions that the government could use up to 500 billion rubles [from the Reserve Fund]. If it's $60 per barrel, it's clear that this sum will be bigger. But at the same time we understand that the use of the Reserve Fund can only be short-term, and it cannot be a constant source of financing," he said.

Talking about the volume of money that could be used from the Reserve Fund, Oreshkin said this also depends on decisions to be made on the optimization of the spending structure. "A governmental commission led by First Deputy Prime Minister Igor Shuvalov has been set up and is working with government programs and analyzing what expenditures could be cut. There will be a list that you can look at and look at the current macro-situation and make a decision that expenditures in 2016-2017 should be cut by this and this amount, and expenditures will be chosen from this list, and the budget situation on the whole will be stable," Oreshkin said.

The commission will continue working within the coming months, he said.

"I think we will see the list next year," he said.

Oreshkin also mentioned 2.5 percent of budget expenditures endorsed conditionally, which may not be implemented if there is a need to cut expenditures.

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