World Economy

Cheap Crude Threatens Russia Reserves

Cheap Crude Threatens Russia ReservesCheap Crude Threatens Russia Reserves

According to Russian Finance Minister Anton Siluanov, the country’s Reserve Fund could end in 2016. In this case, Russia will turn to its other international reserve, the National Welfare Fund.

The main threat comes from falling oil prices. Russia’s 2016 budget depends on oil prices averaging $50 per barrel to meet spending. Below that price, the country must dip into its reserves, RT reported.

“We’ll cut our Reserve Fund by approximately 2.6 trillion rubles [$37 billion at 70 rubles per dollar] by more than a half in 2015. All this means is that 2016 will be the last year we will be able to spend our reserves. There will be no reserves anymore,” Siluanov said at the end of October.

According to the October forecast by the ministry of finance, the Reserve Fund in 2016 will reduce from 3,379 trillion rubles to 1,249 trillion. The National Welfare Fund, as predicted by the ministry of finance, will drop from 4.9 trillion to 4.69 trillion rubles.

In December, the Russian State Duma adopted the federal budget for 2016. MPs expect an income of 13.74 trillion rubles, spending is estimated at 16.1 trillion and a deficit of 2.36 trillion. These figures are based on oil prices next year at $50 per barrel.

The shortfall in public funding will be compensated from the Reserve Fund. Reserve Fund and the National Welfare Fund as part of the international reserves of Russia. The country’s reserves as of December 1, 2015, stood at $369.7 billion according to the Central Bank of Russia.

Russian Prime Minister Dmitry Medvedev said in December that the  economy could return to growth in 2016 with inflation halving to 6.4%, but that depends on the price of crude.

 Weak Ruble

Russian oil industry will endure low commodity prices due to Russia’s weakened national currency, Moody’s Investors Service said in a press release last Monday.

“Russia’s weak ruble will help the country’s national oil companies withstand low oil prices, but economic sanctions limit access to long-term external financing from US and EU financial and capital markets for the Russian giant Rosneft (Ba1 stable),” the release stated.

In December 2015, prices for Brent oil fell below $37 per barrel, reaching a level last seen in December 2008. Following the decline, the value of Russia’s ruble, which is traditionally dependent on the price of oil, fell to a 3.5-month minimum against the dollar, exceeding 71 rubles per dollar.

Moody’s argued that the global oil and gas industry will have to reduce spending in 2016 in the face of decreasing oil prices. The rating agency added that excess supply will continue to influence the oil sector, which will likely see a rise in defaults in 2016.