Russia won’t cut oil production despite low prices

World Today

The prices of crude oil has fallen further after the Organisation of Petroleum Exporting Countries (OPEC) decided not to cut output at its meeting in Vienna Thursday.  Non OPEC member Russia is struggling with a stagnant economy teetering on the brink of recession. CCTV America’s Tom Barton reported from Moscow.

Russia won't cut oil production despite low prices

The prices of crude oil has fallen further after the Organisation of Petroleum Exporting Countries (OPEC) decided not to cut output at its meeting in Vienna Thursday. Non OPEC member Russia is struggling with a stagnant economy teetering on the brink of recession. CCTV America’s Tom Barton reported from Moscow.

Russia’s energy minister refuted earlier reports of an initiative for Russia to cut oil production by 300,000 barrels a day in tandem with OPEC cuts to support price.

“It’s really hard for Russia for proceed with oil production cuts, technically very hard. Therefore, the whole initiative was very questionable to begin with,” said Vladimir Osakovsky, Chief Economist for Russia at Bank of America Merrill Lynch.

U.S. shale oil production and weakened global demand for oil have seen the price of Brent crude drop 30 percent since June to under $80 a barrel.

That’s potentially disastrous for Russia, whose budge for 2015 requires an oil price of $100 a barrel. As much as two thirds of Russia’s budget comes from taxes on its oil and gas assets.

A lower oil price could cost Russia $100 billion a year, says Russia’s finance minister.

“We need to look, to find a different way, to lower demand in the market, and then it will be possible to stabilize at a normal level. To lower production means to neglect contractual obligations, which it’s practically impossible to do, so we just need to tolerate it, along with these sanctions etc,” said Pavel Zavalny, Deputy Chairman, Committee for Energy, Russian State Duma.

Western sanctions over Russia’s actions in Ukraine could cost Russia $40 billion, says the Finance Ministry, on top of estimated capital flight of over $128 billion by the year’s end, a ruble that has lost 30 percent of its value against the dollar and inflation of over eight percent.