Russia is preparing for the possibility that low crude prices are here to stay as competition between oil and other fuels such as natural gas intensifies.
The nation, which relies on oil and gas income for about half its government budget, sees no reason for crude to rise above $50 a barrel anytime soon and predicts it will remain in a $40 to $60 range over the next seven years, Deputy Finance Minister Maxim Oreshkin said at a Moscow conference organized by Vedomosti. Brent crude, the international benchmark, traded for about $39 a barrel in London Friday.
“The market is going through a serious change,” Oreshkin said. Competition from natural gas may continue to depress crude prices, with the former replacing the latter in the global energy balance if oil is more expensive, he said. Natural gas “will act as a magnet to oil prices, rather than the opposite.”
Russia, the world’s largest oil and gas exporter, has been scrambling to adjust to OPEC’s decision to abandon its role as a global swing producer amid a supply glut. Oreshkin’s estimates are more bearish than the International Energy Agency and the Organization of Petroleum Exporting Countries, who both anticipate prices recovering to about $80 by 2020. The Russian government, rather than the oil industry itself, has borne the brunt of lower prices due to the structure of Russia’s tax system.