Russia needs to sell its oil above $100 per barrel just to balance its budget, and over the last few months, the price of crude has dropped by over a third, now trading at just over $80 per barrel. That’s a serious problem for Moscow, which is also contending with a battery of Western sanctions and an anemic economy. Now it’s got Russia’s energy minister mulling his options, including a potential production cut in an attempt to bolster the price. Reuters reports:
[Energy Minister Alexander Novak] said a production cut would be difficult for Russia, because the budget relies on revenues from oil exports, and the country lacks what he described as the “technology” to act quickly to alter supply.Analysts say Russia can do little to shore up the oil price, which had fallen by a third since June to under $80 a barrel, because it lacks storage facilities and may be unable to stop pumping at wells for fear they will freeze over…While much of Russia’s oil industry is state-controlled, private domestic producers furthermore may be reluctant to enforce cuts.
Of course, OPEC has traditionally played the role Russia is eyeing, and is considerably better suited for it, especially Saudi Arabia. But so far, the petrostate cartel has stayed put, content for the time being to compete for market share in these bearish conditions. Russia is reportedly sending a delegation to Vienna ahead of the cartel’s much-anticipated summit next week to push for production cuts, and has already spoken with both Saudi Arabia and Venezuela about cooperating to stop the price slide.Moscow is deeply concerned by $80 per barrel crude, and for good reason—it produces a budget deficit equal to 2.3 percent of the country’s GDP. Putin has used his country’s position as a major energy supplier to great effect in the conflict in Ukraine, but as he’s finding out, when you live by the hydrocarbon, you can also die by it, too.