In a 7-2 victory over the U.S., Russia took the bronze medal in the world ice hockey championships on May 22. The victory over the team from the United States marked the third time in four years the U.S. has missed out on the chance to win bronze. Artemi Panarin, a Russian native who normally plays for the Chicago Blackhawks, said the team played better against the U.S. after losing to Finland in the semifinals.

“I think we just relaxed today,” said Calder Trophy finalist Panarin. “Until now … the pressure was serious.”

In the Russian economy, the pressure also seems to be easing, with GPD declining less than many analysts anticipated. Gross domestic product fell 1.2% from a year earlier after a decline of 3.8% in the previous three months, the Federal Statistics Service said May 16. That was less than all but one forecast of 22 analysts polled by Bloomberg, whose median forecasted a contraction of 2%. Even Russia’s own Economy Ministry projected worse numbers, with the Moscow-based agency predicting a contraction of 1.4%.

While a contracting GDP is certainly far from good news, regardless of the magnitude, Russia’s central bank decided this was enough of a silver lining that it would not lower interest rates from 11%. The bank has held interest rates steady since July after five reductions rolled back most of an emergency increase to 17% in December 2014 following the collapse in crude oil prices.

Central bank key rates for G20 countries

“In the current conditions, a reduction of the key rate wouldn’t result in any significant growth of the real economy,” Bank of Russia First Deputy Governor Dmitry Tulin told lawmakers in Moscow. “If we believed that our policy was killing the real sector, our enterprises, and is choking the shoots of economic growth, then we probably would consider another path for the movement of the key rate.”

The Economy Ministry expects the annual contraction will ease to 0.2%, while the central bank holds the more pessimistic forecast showing 1.5% contraction in GDP for 2016. Even still, the Russian Central Bank still believes quarterly GDP growth may resume in the second half of this year or in early 2017.

Russia's crude supply and domestic consumption

Crude oil output in Russia fell to 10.8 MMBOPD in April, down slightly from the month before when the Russian Energy Ministry reported production of 10.9 MMBOPD. The country produced 49.9 billion cubic meters of natural gas in April, down from 54.0 billion in the month of March.

The ruble takes a 2.2% hit in early May

Russia’s currency continues to benefit from the upward movement of oil prices, but saw some volatility throughout the month. Brent crude oil stumbled at the beginning of the month, falling as much as 6.6% May 2nd and 3rd while Russian markets were closed for the nation’s Labor Day. The ruble dropped along with oil prices when markets opened again on the 4th, falling 2.2% to 66 RUB to the dollar.

The Moscow Interbank Currency Exchange (MICEX) Index dropped 2% as markets reopened at the beginning of May. The decline was led by Russia’s largest bank, Sberbank, and state-owned natural gas giant, Gazprom.

Gazprom’s shares fell from a more than three-year high on news that the company is asking the government for a waiver from a new rule on dividends that would require the company to pay out 50% of its international-standard profit in dividends. The company hopes to exempt itself from the rule in order to preserve cash it may need to buy back shares from state development bank VEB as part of bailout plan. Gazprom’s shares dropped as much 6.1% on the news.

“The market is disappointed, though I’m personally not surprised,” said Alexander Kornilov, an analyst at Aton LLC in Moscow. “Dividends under the new rule would be a huge burden for Gazprom amid less than perfect financial prospects.”

Ruble value in dollars and Brent crude prices

Russia’s currency makes a strong comeback as oil prices climb higher

The ruble’s downturn was short-lived through early May as the currency surged back May 11. Declining U.S. crude oil stocks bolstered oil prices, advancing the ruble more than any other emerging market currency. The ruble climbed 1.7% to 65 RUB to the dollar while Brent crude pushed 3.2% higher.

The ruble has advanced 20% in the past three months, leading gains among major currencies, and its government bonds have generated the second-biggest returns globally after Brazil this year.

The dollar appreciated following a Federal Reserve meeting on May 18, pushing down the value of the ruble, despite just a modest slide in oil prices through May 23.

Analysts anticipated a draw on crude oil inventories leading up to the DOE’s report on May 25, helping to send oil prices, and the ruble, higher. The numbers released by the DOE on May 25 showed an even more dramatic draw than expected, with 4.2 MMBO pulled from storage compared to an estimate of just 1.7 MMBO.

Major deals in Russia

Yamal LNG receives $27 billion in Chinese financing

The highlights

  • Russia’s Yamal LNG project received $27 billion in financing from two major Chinese banks.
  • The project is scheduled to start shipments in 2017, with the first of three trains 65% complete, according to the projects CEO.

After months of saying project financing was “just around the corner,” Russia’s Yamal LNG finalized deals for $27 billion from two Chinese banks. China has been cautious about lending to Russia over concerns that it may run afoul of the U.S. and E.U. by supporting Russia’s oil and gas sector while the country is under sanctions.

The two banks providing the loans – the Export-Import Bank of China and the China Development Bank – are less connected to the global financial market, and are used as pocket banks by the government for political deals, according to Alexander Gabuev, chair of the Russia in Asia-Pacific program at Carnegie Moscow Center. This separation from the international system makes it easier for them to lend to Russia.

Yamal LNG’s CEO, Yevgeniy Kot, said the project is scheduled to start shipping gas in 2017, with the construction on the first of three liquefaction trains 65% complete, and on schedule. The project, along with many other LNG projects currently in the works, faces headwinds with low natural gas prices, however. Logistical problems like moving LNG tankers in and out of the Arctic where the project is located also add to the obstacles that still face Yamal despite the infusion of capital.

Read more about it here.

CNPC plans construction of second leg of oil pipeline from Russia

The highlights

  • CNPC plans to start construction on the second phase of the East Siberia-Pacific Ocean crude pipeline in June.
  • The pipeline will have a total capacity of 219.9 MMBO per annum (roughly 602 MBOPD) once complete.

China National Petroleum Corp. plans to begin the construction on the second leg of the East Siberia-Pacific Ocean crude pipeline this June. The pipeline will run about 585 miles from the Chinese border city of Mohe to Daqing in northeast China. The pipeline is expected to be completed by October 2017, according to CNPC, and will carry 30 million metric tons of crude per year (219.9 million barrels).

Russia’s Transneft, the company in charge of exporting Russia’s crude oil, said it will be ready to ship at full capacity in the second leg of the pipeline starting January 1, 2018.

Read more about it here.

Russia and Vietnam increase energy ties

The highlights

  • PetroVietnam signed a total of five cooperation agreements with Russian oil and gas companies covering upstream projects and gas use in power generation.
  • Both countries’ governments agreed to stimulate new projects with tax breaks to ensure strong returns on the project

Eight Memorandums of Understanding were signed by Vietnam’s prime minister while he visited Moscow, five of which concern oil and gas. Vietnam’s oil and gas company PetroVietnam signed a cooperation agreement with Rosneft, two memoranda of understanding with Gazprom – on new oil and gas upstream projects and gas use in power generation – and a production sharing agreement with Vietsovpetro, its joint venture with Russia’s Zarubezhneft.

Rosneft also hopes the new deals will give it greater access to Vietnamese markets. “The new stage of cooperation will allow the company to gain a new channel for crude sales in the Asia-Pacific region, and potentially, create additional synergy through refining in the region,” Rosneft CEO Igor Sechin said.

Read more about it here.

Russia sells $1.75 billion in first Eurobond sale since sanction

The highlights

  • Russia sold $1.75 billion in Eurobonds, making its return to the international debt markets following the implementation of sanctions.
  • The 10-year notes were placed with a 4.75% yield, but there is “no assurance(s)” the bonds will be eligible for major international clearing systems.

Russia made its return to the international debt market with its first sale of Eurobonds since the U.S. and E.U. placed the country under sanction. Russia sold $1.75 billion worth of 10-year bonds with a 4.75% yield. The sole arranger for the sale was VTB Capital, the investment-banking arm of the sanctioned state lender VTB Group. The main buyers of the Eurobonds were investors from Great Britain, the head of the Russian Finance Ministry’s debt department .

“There’s a lot of Russian money outside of Russia, so if you wanted to say that we sold this overseas, you could probably use that,” said Kieran Curtis, a money manager at Standard Life Investments.

The sale is hoped to help bridge the fiscal gap left in Russia’s budget following the sharp decline of crude oil prices at the end of 2014. According to information from Bloomberg, Russia’s debt to GDP was 13.5% at the end of 2015. For comparison, U.S. debt to GDP was 73.6% at the end of last year.

While the funds raised in the sale won’t be channeled to blacklisted companies, there’s “no assurance” the bonds will be eligible for major international clearing systems on which many foreign funds rely, according to the prospectus.

Investors bid about $7 billion for the bond and more than 70% was placed with foreign investors, according to Russian Finance Minister Anton Siluanov. The 2016 Russian budget allows for as much as $3 billion in Eurobond sales, and Russia may sell the remaining $1.25 billion before the end of the year. Investors remain concerned about the liquidity of the bonds given that they may not be Euroclearable.

“We just aren’t sure whether this will be Euroclearable and if it’s not, then who will trade it?” said Viktor Szabo, who helps oversee $11 billion of emerging-market debt as a fund manager at Aberdeen Asset Management. “Will there be secondary-market liquidity? There are serious doubts.”

Read more about it here.

Indonesia’s state-owned Pertamina will partner with Rosneft in $13 billion refineryRussia

The highlights

  • State oil firm Pertamina has selected Rosneft as a partner in a $13 billion refinery the company hopes to build in East Java.
  • Indonesian President Joko Widodo hopes to see the deal finalized by the end of 2017, with construction on the 320 MBOPD refinery starting in 2018.

Indonesia’s state-owned oil and gas company Pertamina announced that it has decided to partner with Rosneft on the construction of a new refinery in East Java. The refinery will require a total investment of $13 billion and, once complete, will have 320 MBOPD of capacity, according to Minister of State Owned Enterprises Rini Soemarno. Indonesian President Joko Widodo said he hopes to see the deal finalized by the end of 2017, with construction set to start in 2018.

It also appears that Rosneft will construct oil storage in Indonesia, and that Pertamina will cooperate with the company on developing Russia’s oil and gas fields. The production from Pertamina’s operations in Russia will then be brought back to Indonesia for use in the new national oil reserves.

Read more about it here.

Rosneft to create offshore drilling JV

The highlights

  • Rosneft has created a joint venture with Conglomerate Keppel Corp’s offshore and marine unit, and drilling equipment firm MHWirth to establish a design and engineering center in Russia.
  • Initial projects by the JV will be for Rosneft on the company’s shallow water offshore platforms.

Rosneft announced that it will form a joint venture with Singapore-based Conglomerate Keppel Corp’s offshore and marine unit (Keppel O&M), as well as Norwegian drilling equipment firm MHWirth. The JV will establish a design and engineering center in Russia, with initial projects from Rosneft for work related to shallow-water platforms. The JV will also look for work from other Russian and international customers.

Keppel O&M and Rosneft will each hold a 45% stake in the joint venture, with MHWirth holding the remaining 10% interest. A statement from Keppel said the JV and the center will adhere to existing U.S. and E.U. sanctions imposed on the Russian offshore oil and gas sector.

Read more about it here.

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