The Daily Update - Oil

Oil has had a torrid time of late with the Brent Crude price trading down ~22% from its October high. Suhail Al Mazrouei, the UAE Energy Minister and President of OPEC stated that OPEC+ needs to review its strategy and it will adjust projection to balance the market stating: ‘We have cut in the past to reach the market balance, and if we need to cut production to keep the market balanced, we will’. This follows Saudi Arabia advocating a 1million bpd cut to production earlier in the week. However, a decision is not expected until OPEC+ meets in Vienna in December and importantly Russia while favouring co-operation seems less committed to aggressive cuts with reports quoting Vladimir Putin as saying ‘where it is now, where it was recently, anything around $70 suits us completely.’

It is easy to see why Putin might be comfortable with the oil price at current levels: despite the recent fall the crude oil price trading around the levels it started the year at, plus, the Russian budget assumes a USD40 per barrel price (Urals Blend).  In Q1 the oil price averaged ~USD65 per barrel, in Q2 it averaged ~USD75 per barrel respectively. Thus, for the January-October period the Russian budget showed a surplus of 3.6% of GDP which amounted to RUB3.02tn (or USD44.1bn). The primary surplus, excluding debt service costs was 4.5% of GDP. Prudent fiscal policy, asset buffers, low government debt levels and a flexible exchange rate has made Russia resilient to external shocks and sanctions. However, further sanctions from the US still remain a risk.

Nevertheless, Russian issuers are still able to access the international markets: Gazprom returned to the market earlier this week with an €1bn 5 year LPN with a coupon of 2.95% for which there was over €1.4bn of demand.

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