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Why oil prices are keeping Putin up at night

Steve LeVine, the oil and the glory
My mom out in California is elated — gasoline prices in her neighborhood are below $4 a gallon for the first time in four months. Less so are the world’s petro-rulers, who are watching the price of oil — their life blood — plunge at a rate they have not experienced since the dreaded year 2008. Industry analysts are using phrases such as “devastation” and “severe strain” to describe what is next for the petro-states should prices plummet as low as some fear. No one is as yet forecasting a fresh round of Arab Spring-like regime implosions. But that’s the nightmare scenario if you happen to run a petrocracy.

To understand why your average oil king is right to be worried at the moment, grab your calculator. The price of U.S.-traded oil fell to $83.27 a barrel on Monday, and global benchmark Brent crude to $96.05 a barrel; now juxtapose that against the state budgets of Iran, Russia, and Venezuela, which require more than $110-a-barrel Brent prices to break even, according to generally accepted estimates, and you’ll see the problem.

Given this already-existing revenue gap, one might fairly wonder what would happen if, as Citigroup’s Edward Morse says is possible, prices drop another $20 a barrel for an extended length of time. Oil economist Philip Verleger’s forecast is even gloomier — a plunge to $40 a barrel by November. Or finally, what Venezuelan Oil Minister Rafael Ramirez fears — $35-a-barrel prices, near the lows last seen in 2008. In Russia, for instance, “$35 or $40, or even $60 a barrel, would be devastating fiscally,” says Andrew Kuchins of the Center for Strategic and International Studies. That could damage the standing of President Vladimir Putin, since his “popularity and authority are closely correlated with economic growth,” Kuchins told me in an email exchange.

With few exceptions, the same goes for the rest of the world’s petro-rulers, whose oil revenue supports vast social spending aimed at least in part at subduing possible dissatisfaction by their populace. Saudi Arabia can balance its budget as long as prices stay above $80 a barrel, according to the International Monetary Fund, although projected future social spending obligations will drive its break-even price to $98 a barrel in 2016…
(20 June, 2012)

Russia: oil gloom over St Petersburg

Stefan Wagstyl, FT blog
Oil prices slipped another notch on Thursday, putting pressure on producers, not least Russia, where the US$-denominated RTS index was down by 1.4 per cent around noon, Moscow time.

It was hardly an auspicious backdrop for the St Petersburg Economic Forum, Russia’s premier business conference, which is hosted personally by president Vladimir Putin.

But what to do? Russia is even more dependent on oil than it was 12 years ago when Putin first took power. So it’s not surprising that with Brent crude down 0.7 per cent at $92 a barrel, investors are jittery…
(21 June 2012)

Putin Pushes International Oil CEOs For Access To Assets

Jake Rudnitsky and Ilya Khrennikov, Bloomberg
President Vladimir Putin asked the chief executives of U.S. and European energy producers to grant Russian companies access to international assets, holding out some of the world’s biggest untapped resources as a prize.

Putin is hosting the heads of Royal Dutch Shell Plc (RDSA), ConocoPhillips, BP Plc (BP/) and Eni SpA (ENI) at the St. Petersburg International Economic Forum, using the three-day event to say Russia is one of the most welcoming countries for energy investments.

“Far from all countries allow such a broad involvement by foreign companies in the energy sector,” Putin said in a speech yesterday, pointing to Mexico and Norway as countries where state-owned companies dominate the energy industry.
State-controlled OAO Rosneft, Russia’s largest oil producer, has formed alliances with Exxon Mobil Corp., Eni and Statoil this year that grant access to potentially billions of barrels of offshore and hard-to-recover resources in exchange for stakes in projects abroad.
(22 June 2012)