Russia Budgets for Lower Oil Prices for Longer
Russia Budgets for Lower Oil Prices for Longer | OilPrice.com
Russia is preparing for lower oil revenues resulting from depressed prices along with a more relaxed tax regime, Bloomberg has reported, citing a draft three-year budget.
Per that document, oil revenues in Russia would decline by 14% over the next three years—provided international oil prices remain weak.
For 2025, the document sees oil revenues of some $120 billion, or 10.94 trillion rubles, which would be a decline of 3.3% from this year. That modest decline would then extend into 2026 and 2027, by which year oil revenues would fall to $110 billion, according to the government’s projections.
Russian oil price projections for budgeting purposes tend to be bearish to minimize the element of surprise in case of negative price developments, curbing their impact on spending. The approach has worked well in the past, shielding the country from the need for austerity measures when prices have moved in an unfavorable direction.
In keeping with this approach, Russia’s budget for 2024 assumes an average price of $70 per barrel of Brent crude, declining to $69.70 per barrel in 2025, $66 per barrel in 2026, and $65.5 per barrel in 2027.
Natural gas prices are also seen falling over the next four years, from $279.90 per 1,000 cu m this year to $240.20 per 1,000 cu m in 2027.
Related: Oil Prices Surge on Supply Uncertainty, Demand Optimism, and Geopolitical Risk
Russia has already seen a substantial decline in oil revenues this year due to weaker prices. Since June, the value of Russian crude imports has plunged by 30%, according to Bloomberg estimates, despite higher volumes shipped abroad. Indeed, in that period, Russia’s flagship Urals blend fell below the G7 price cap of $60. Since then, however, it has recovered and is now trading at over $67 per barrel.
Over the medium term, the draft budget suggests transition efforts would undermine demand for crude oil, even though evidence currently points to the contrary, with the biggest reason behind keeping prices depressed being traders worry about oil demand in China. That demand, by the way, may yet surprise: oil imports in August jumped considerably, both from Russia and from another large supplier: Iraq. Imports from Saudi Arabia fell, likely because of higher prices.
Yet Bloomberg’s own BNEF recently predicted that oil demand for transport fuels was set to peak in three years thanks to broader EV adoption that BNEF claims has already removed some 1.8 million bpd from global crude oil demand. However, EV sales are on the decline everywhere except in China, which is evidence that predictions do not always come true. In Europe, a key market, EV sales took a 44% plunge last month.
All this means that while Russia budgets for lower oil prices, anticipating a worst-case scenario, prices may actually rise in the next couple of years, especially if OPEC+ keeps its production capped. For now, theoretical plans are to start rolling back some of the cuts at the end of this year, but if prices remain below $80 per barrel of Brent crude, the cartel may reconsider this, as it already did once earlier this month.
If the Russian budget projections prove anything, it is that sanctions have failed to decimate the country’s oil revenues despite much effort being put into that. A decline of $10 billion over three years is no small potatoes, but it’s not exactly half or more of said revenues. It is, in fact, less than 10% of 2024 revenues.
This suggests that despite predictions of peak oil demand, perceptions of advancing transition, and expectations of a further oil price slump, demand for the world’s most traded commodity, even under sanctions, remains solid enough to bring in billions of dollars in revenues.
By Irina Slav for Oilprice.com
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