Streetwise Professor

January 12, 2009

Do As I Say Not As I Do

Filed under: Commodities,Economics,Energy,Politics,Russia — The Professor @ 9:16 pm

Remember back in November and December when Russia was playing footsie with OPEC? All the sweet nothings about coordinating output cuts to stabilize prices? Well, sweet nothings they were. From Reuters:

Russian oil output fell to 9.66 million barrels per day (40.87 million tonnes) in December 2008, down 1.6  percent from 9.82 million bpd in November, while exports via pipeline monopoly  Transneft <TRNF_p.RTS> rose 17.9 percent to 4.36 million bpd (18.4 million  tonnes).

Another Reuters article reports that Russian seaborne exports rose 20 percent as well.   Although Russian output declined, exports rose: and it’s exports that have an effect on world prices.  

Yesterday Russia also announced that February’s oil export duty would likely fall to $100/ton (from $119/ton):

Russia may cut its oil export duty to around $100 per tonne from Feb. 1 to account for lower oil prices, a senior Finance Ministry official told Reuters on Monday.

Alexander Sakovich, deputy head of the ministry’s customs monitoring department, told Reuters the February export duty was calculated based on the average price for Russia’s benchmark Urals crude blend URL-E URL-NWE-E of $39.8 per barrel since the monitoring started on Dec. 15.

“If the oil price will not rise above $67.5 per barrel in the next three days, the duty will most likely be cut. It will be close to $100,” he said.

The oil export duty was set at $119.1 per barrel in January.  

If Russia were serious about cutting exports in order to raise prices it would raise export duties.

As low as prices are, Russia has little independent incentive to cut output.  It is much more profitable to let OPEC chumps bear the brunt of output cuts, and sell as much as possible.  

Maybe OPEC will remember this next time Putin or Sechin pledges solidarity.

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  1. Hmmm . . . output down, exports way up — sounds like there’s less and less black gold available for Russian consumers. Luckily for them, Putin craftily arranged a feeble economy that doens’t need too much oil, or anything else, to operate because it hardly produces anything and leaves the population wallowing in popularity. But there’s a flaw in the plan! The ruble! If it’s falling, then the price of all those goods Russia must have to makeup the shortfall is soaring out of sight, with shortages inevitable.

    The people of Russia have elected a proud KGB spy to rule them. Now, they will taste the bitter consequences of that decision.

    Comment by La Russophobe — January 13, 2009 @ 6:04 am

  2. You are right that the decline in output + increase in exports implies a large decline in domestic Russian oil consumption. This is a telling indication of a sharp drop in the Russian economy, and manufacturing in particular. (I imagine electricity consumption numbers will also show a sharp drop, seasonally adjusted.)

    The ruble dropped sharply after the New Year, apparently a little too fast for the central bank. According to Bloomberg, the bank sold $3.4 billion on 1/11/09 and $6 billion (plus about $1 billion in Euros) yesterday. Market estimates put dollar sales in December at about $75 billion (or about 12.5 percent of the pre-crisis reserves) with sales of $20 billion from 12/26-12/30.

    I wonder if the frog is starting to feel it yet.

    The ProfessorComment by The Professor — January 13, 2009 @ 9:56 am

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