Tuesday 4 March 2014

Russia's day: All about the oil price?

So the day has ended with stocks down, nearly 1.5%  in the UK and also 11% down in the ever volatile Russian market.

A key point to remember is what Russia exports - mainly oil and gas. The key indicator for these are gas prices and the Brent crude benchmark. As can been seen from the chart - the price of oil has risen although not too much on the situation in Crimea.

Gold to had a little spike and Russia is a big net exporter of Gold. Finally European Gas prices increased 10% at one stage which was a much bigger drop.

However, often overlooked is the conspiracy theory view of events - ever popular, normally wrong. The thing here is Russian reliance on exports to pay for its budgets. It's all very well comparing Putin to Hitler or Stalin, but perhaps more prosaic action is necessary to explain his actions. yes, nationalism but also economic nationalism.

Russia's budget needs oil to hold firm above $98 a barrel to balance its budget according to Saudi Economists - this is pre-intervention costs. The price is now firmly set when in February before the crisis rose to prominence then oil was flirting with $100 and less.

No need to worry about budget crisis now; the deeper the crisis, the higher the oil price, the richer Russia gets.


Nick Drew said...

with the added twist that, as USA nears self-sufficiency in oil (and USA + Canada self-suff in gas) they too are pretty happy about oil prices rising

its EU that gets squeezed (even before we start the hard cash transfers to Kiev) - plus the 'developing world', already in trouble this year without a commodities spike to contend with

I still think 'Russia's Day' doesn't translate into a particularly happy long-term situation for Putin. The best he gets is a stalemate that could just about be seen as moderately satisfactory from an isolationist standpoint

dearieme said...

How it turns out depends partly on how fly Putin is. It helps his cause that the US seems to be under the control of dolts.

Jer said...

Nick, I think you miss the point.

For years Russia was controlled by weak men or foreigners, the empire was lost and parts of Russia itself torn away.

Then came Putin, the first true Russian leader in living memory (Yeltsin doesn't count for some reason). He was strong, he restored Russia and regained the lost ground.

I'm fairly sure that's how he sees it, the hand of history. Economics won't get a look in.

Nick Drew said...

point taken, Jer - but there is also the matter of how he'd like to be viewed in the wider world, ideally

because (like many a Tsar before him) we know that matters to him, after he's taken good care of being seen as the strongman at home, kto kvo etc

and we know that what he would ideally like includes transforming Russia from being a commodity exporting nation of robber-baron oligarchs ('Upper Volta with rockets'), to a high-tech manufacturing economy that people actually respect

he just hates how he hasn't managed to do this, but somehow China seems to

how when he tries to sell gas to China in a bundled package with trucks etc, they tell him to take a hike oh, and by the way Putin, you can stuff your oil-indexed gas pricing as well

how he has to bow and scrape to be allowed into the WTO

how his intelligentsia want nothing more than to have their children educated in the west and then stay here

how the FSU and Warsaw pact countries want to join NATO and the EU at the first opportunity

the Ukraine thing even forces him to work to maintain the strongman thing, and puts an end to his desire to re-assert hegemony over reluctant FSU countries

he has to take comfort in (a) yes, solidifying his hard-earned strongman label; (b) annoying the hell out of the Brussels EU expansionist tendency; and (c) proving to the world that Germany et al care more about energy trade with Russia & selling them Mercs and range Rovers, than the fate of Ukraine - which is just more strongman stuff (and he doesn't really enjoy importing Mercs anyway)

Steven_L said...

ND, can you name any nation that manages to blend being an oil exporter with a manufacturer?

Digging stuff up and selling it seems to kill manufacturing. If it wasn't for cheap immigrant labour living in social housing all the fish packers up here in Aberdeen would go under in a shot.

Nick Drew said...

UK! (we were a net O&G exporter until 2004)

also Canada, Norway, Netherlands, & (without researching) I'd guess Indonesia as well

+ watch out for USA in years to come!

dearieme said...

In the glory years of the USA it was both a manufacturing power and a primary producer - coal, oil, gas, ore … and even crops.