$30 Oil is Above Breakeven for Russia

Senior OPEC and Russian oil industry officials stepped up vague talk on Monday of possible joint action to remedy one of the worst supply gluts in decades, while Saudi Arabia signaled its resolve to allow the market to balance itself.

The latest volley of comments highlighted the intensifying pressure of $30 a barrel oil prices on cash-strapped countries such as Russia, but did not appear to tilt the scales meaningfully towards any concerted action to reverse the price crash, an idea repeatedly mooted but dismissed for over a year.

Speaking in London, OPEC Secretary General Abdullah al-Badri said other producers should work together with the group to tackle swollen global stockpiles so prices can recover, essentially reiterating OPEC’s longstanding position that it would only consider cutting output if others pitch in.

Moscow, seen as the likely lynchpin of any potential output agreement, has so far refused to cooperate, saying its fields and weather conditions are different from those in the Gulf even as prices below $30 per barrel are way below what its budget needs to breakeven.

But as its currency collapsed to an all-time low last week and with parliamentary and presidential election looming in the next two years, pressure is rising on the Kremlin to protect state revenues and avoid mass public discontent.

“The practice of filling the market with cheap oil at any cost is wrong — half a year or a year later it could be sold at twice as high,” Leonid Fedun, vice-president of Lukoil, Russia’s second largest oil producer, was quoted as saying.

Last week, the head of Russia’s direct investment fund, Kirill Dmitriyev, who doesn’t oversee Russian oil policies, said at a conference in the Swiss Alpine resort of Davos that Russia could one day cooperate with OPEC – not now but when the markets rebalance – in a year or later.

via Reuters

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 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