Russia prepares for $40 a barrel oil price

Russia has published its proposed federal spending for 2017–2019 based on oil selling for just $40 a barrel.

In contrast, some industry experts are predicting the price of oil to recover to $60 a barrel once the global supply glut is reversed.

This is likely to send some jitters through the market, especially given how the oil price recently dipped below $50 a barrel towards the end of March, the first time since the Organization of the Petroleum Exporting Countries’ (OPEC) production cuts were introduced. Oil producers like ExxonMobil, which also produces lubricants such as Mobil Velocite 3, are also sensitive to large drops in oil prices, because the economic feasibility of many oil sources is dependent upon a higher oil price.

Industry analysts, however, are keen to play down the move by the Bank of Russia, suggesting that the central bank is merely playing it safe. The dramatic 65% drop in oil prices in 2014-2015 hit Russia particularly hard, ultimately plunging it into recession. As the Russian ruble came under intense pressure, policy makers were forced to implement an emergency interest rate rise.

Given this recent lesson, Russia seems to be taking nothing for granted when it comes to oil prices, so it is preparing for the worst but hoping for the best. Much will depend upon on whether the recent OPEC production cuts, which Russia participates in as a non-OPEC partner, will be extended in May. If an agreement is not reached, oil prices may well tumble to $40 a barrel in line with Moscow’s prediction.