Russian Economy Faces Oil Price Drop Risk

Falling oil prices knocked pounds 1bn off the value of North Sea services firm Petrofac yesterday and are on course to cripple the Russian economy without a rescue package from the oil producers’ cartel Opec later this week.

Petrofac, which operates in almost 30 countries, saw its share price fall by more than a quarter after it said profits would be low this year to reflect a 30% decline in Brent crude prices since the summer. The oil and gas services firm said it expected 2015 net profit of about $500m (pounds 403m), $190m less than analysts had forecast and below the $580m predicted for this year.

Investors took the warning as a sign that oil majors Shell and BP along with a host of medium-sized operators in the sector would follow suit.

A barrel of Brent crude slid 40c a barrel to a fraction below $80, down from $86 a week ago. Five months of declines in the cost of oil have battered oil firms and the leading producer nations. The Russian finance minister said yesterday the country is losing up to $140bn (pounds 90bn) a year because of a combination of plunging oil prices and Western sanctions over the Ukraine conflict.

“We are losing around $140bn per year due to geopolitical sanctions,” finance minister Anton Siluanov said in a speech at an economic forum in Moscow, quoted by RIA Novosti news agency. The oil price was causing Russia economic damage of “some $90bn to $100bn per year”.

President Vladimir Putin has dismissed the economic damage as “not fatal”, insisting that the falling rouble would only hurt the Russian economy “to an extent, but not [cause] fatal” damage.

via Witco

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza