Wednesday, September 21, 2016

Oil Slump Threatens Russian Economy

Oil prices are down once more, with WTI crude settling around 45 dollars earlier today. While oil bulls are painting a hopeful picture in the energy sector's future, outlining increasing demand and a slowdown in supply, the International Energy Agency is predicting more of the same: oil demand is slackening, while production is on the rise. With no cap on oil production being implemented within OPEC countries, the market continues to be flooded with crude -- even as demand has reached an all time low of 0.8 million barrels per day in Q3 of this year.

What does this mean for Russia? Today, Russia's "rainy day" fund has been dipped into -- and dipped into again, leaving it almost depleted: it's balance in 2014 before oil prices dipped was a comfortable 91 billion dollars, and now sits at 32 billion this month.

With oil prices set to stay below 50 dollars in the near future, Russia's 2016 budget seems to be falling short, as it was based on the assumption that crude would rise above 50 dollars. With their reserves dangerously low, Russia may have to turn to their welfare fund in order to maintain the Ruble's stability. The welfare fund is designed to finance future investment projects and cover long term pensions -- with markedly less liquid assets, this supply of 70 billion dollars may be impossible to withdraw from in copious amounts.

The government will reveal next year's budget plan after a parliamentary election this weekend.
-Nicole Simos

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