Russia's Oil Bosses Brush Off Crude Price Drop

(Bloomberg) -- Russian officials and executives from its biggest oil companies put on a brave face Wednesday, even as Brent trades near 16-month lows.

“The drop in oil prices hardly bother us because our budget is based on $42 a barrel,” First Deputy Prime Minister Anton Siluanov told reporters ahead of a meeting between President Vladimir Putin and big business in Moscow Wednesday.

“The price can stay around $40-$50 for a time -- six months or a year,” because U.S. producers have hedged some of their production, Siluanov said. “We think this won’t last long.” Even if it does, Russia has ample financial reserves, he said.

Brent traded at $50.47 on Wednesday, near the lowest since August 2017, amid worries of a new supply glut and a slowdown of global economic growth. While the Organization of Petroleum Exporting Countries and its allies including Russia agreed earlier this month to cut production in the first half of 2019, investors remain concerned that the reduction won’t be enough to boost prices given projected output growth in the U.S.

The price “should have stabilized, because everyone was supposed to be scared” by the OPEC+ deal, said Igor Sechin, chief executive at Rosneft PJSC, Russia’s biggest crude producer. “But nobody was scared.”

He blamed rising U.S. interest rates for forcing speculators to sell their positions and drive prices lower. Rosneft’s “conservative” scenario put oil at $50-$53 a barrel in 2019.

Vagit Alekperov, president for the second-largest oil producer Lukoil PJSC, forecasts crude will be stable at $60 or slightly more next year thanks to the OPEC+ pact.

The comments followed statements Tuesday by Kremlin spokesman Dmitry Peskov that it’s too early to assess the OPEC+ deal’s effectiveness and the pact will have an impact on prices over time.

To be sure, the central bank cut its price outlook for next year to $55 from $63 earlier this month on higher supply risks, mainly related to the “fast output increase” in North America, according to Governor Elvira Nabiullina.

©2018 Bloomberg L.P.