Russia suffers from a continuing fall in oil prices

Futures for West Texas Intermediate crude turned negative for the first time in history, and the price for Russian oil, Urals crude, dropped to levels that are not seen since 1999.

Oil prices look set to remain low until at least the next two months. Although this is a severe problem for Russia’s finances, it is not catastrophic. Even though the collapse of WTI doesn’t have a direct link to Russia and Russian-produced oil, but Russia is suffering from the overall collapse in prices. The price of Urals crude is determined by agencies Argus and Platts with deliveries of Brent crude, the pricing benchmark for more than two-thirds of the world’s oil.

Russia suffers as oil prices collapse. 

Russia’s tax system is built to benefit from rising crude prices, and it suffers much more than oil-producing companies when prices fall. At $35 a barrel, Russia taxes oil at 50 percent, but when crude is $20-25 per barrel, taxes fall to 24 %, according to the estimates by the accounting firm Ernst & Young. Natalia Orlova, the chief economist at Alfa Bank, said that over the course of a year, a $1 drop in the price of a barrel of oil costs Russia about 130 billion roubles ($1.7 billion).

 

“The budget will be down $3.8 billion each month if the Urals price is $12.40.”

Russia’s 2020 budget balances at an average Urals crude price of $50, which means that if the Urals is about $10 over the next two months, the budget will be 860 billion roubles ($12 billion) short. The Finance Ministry last month calculated that the budget would be down $3.8 billion each month if the Urals price is $12.40. Russia is currently in the world’s top 10 countries for the number of COVID 19 cases. However, the peak of its epidemic appears to be passing. Currently, over 68,622 have been found positive with COVID 19 in the country, and 615 people lost their lives. The daily number of new cases dropped consistently for the first time since the beginning of the outbreak this week. 

Over 2.8 million have been diagnosed positive with the coronavirus in the world as numbers continue to increase each day exponentially. 

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Jai Pratap
Jai Pratap
A Mass Media Graduate who loves to write. Jai is also a sports enthusiast and a big movie buff. He loves to learn new things.

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