Quarantine barrel: will cheap oil kill the Russian economy?

US, WASHINGTON (ORDO NEWS) — Will coronavirus finally kill the demand for oil, or will the most valuable energy raw materials of the last century survive the pandemic of the world economy by only slightly coughing? I would not give a definite answer to this question, despite the gradual lifting of quarantine restrictions throughout the world and the beginning of a revival of the global economy, Forbes reported.

One thing is clear: having overcome a virus that suddenly came from nowhere, the world will understand that oil has ceased to be overestimated due to geopolitical risks and liquid goods. This psychological frontier (one of the cliches of investment analysts) is taken.

The confrontation between Russia, Saudi Arabia and the US, like the virus, brought down oil. The price for it became negative for the first time in history: at the New York Mercantile Exchange (NYMEX), futures for WTI varieties fell below zero – to minus $ 40 per barrel at the moment. And this is a fundamentally new situation. Until recently, it seemed that interest rates could not be negative, because the classical economic theory says: over time, money depreciates, now they are more expensive than in the future, and not vice versa. It turns out not if you live in Switzerland, Germany and a number of other European countries. And now we see the next step of the “new normality”: oil sellers must pay extra, so that the goods are taken from them. Although so far it is only a matter of trading derivatives, not live barrels.

The record drop in futures on WTI on the eve of the deadline for April 21 was technical, since he himself provided for the delivery of goods, and all oil storages were full, so the paper owners tried to get rid of them at all costs, having driven it deep into the red territory. The Cushing terminal in Oklahoma is filled with throat, dozens of oil tankers filled to the brim drift off the coast of California – this is about the liquidity of the goods.

What to do to Russia? For 20 years, the President (s) and the government have diversified the economy and put it on an innovative track to get off the oil and gas needle. There are some successes, but overall the situation is changing little. In 2006, before the couple of the most turbulent years in the history of hydrocarbon well-being, oil and gas revenues of the federal budget amounted to 46% (2.9 trillion out of 6.3 trillion rubles), in the crisis year of 2009 – 41% (3 trillion out of 7.3 trillion rubles), in the turning point for relations with the West in 2014 – 51% (7.4 trillion out of 14.5 trillion rubles), in 2019 – 39% (7.9 trillion out of 20.2 trillion rubles). On the other hand, it is Kudrin’s Pill, the National Welfare Fund, accumulated thanks to oil and gas revenues, that gives the Russian economy a good chance not to die from coronavirus.

The peculiarity of the current moment is that the ruble / dollar exchange rate has stopped responding to oil surges (from $ 10 to $ 30 per barrel and back) and is nailed (by the Central Bank) at around 75 rubles. In a market where there are almost no foreigners left, the Central Bank has all the possibilities and, most importantly, the desire to maintain the ruble exchange rate, because with its sharp decline, the already tense situation in society can turn into an explosion. Although the most effective, simple and proven way to revitalize the Russian economy is a deep, sharp devaluation. And, most likely, the authorities will use it more than once. But will this help the budget at zero oil price?


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