Russian economic planners are enjoying a good start to the year. Due to a reduction in production by OPEC coupled with production limitations in the US, the price March futures for a barrel of Brent oil stood at $69.29 on Tuesday the 9th of January. The last time the price of the barrel of Brent exceeded $69 was in May 2015, and before that, in December 2014.
The increase in prices is facilitated by an extension of an OPEC agreement. In late November, OPEC countries together with 12 other oil producers extended the agreement to limit oil production to the end of 2018.In addition, evidence is coming to light that oil reserves in the United States are more limited than previously envisaged. On Tuesday, the American Petroleum Institute (API) reported that US fuel inventories fell by 11.2 million barrels to 416.6 million barrels last week. Russian Ministry of Energy data will be published on Wednesday. If they confirm the API data, US stock reduction will be the maximum for this time of year since 1999, Bloomberg points out. “The reduction in production and demand continue to balance the market,” said Jen McGillian, market research manager at Tradition Energy.
A direct correlation between the performance of the Russian economy and oil prices are a little more difficult to identify than previously. Russian oil production is also being cut because of the OPEC restrictions, which Russia has voluntarily agreed to ( in December of last year, Russia agreed to continue to participate in the scheme to extend oil cuts until the end of 2018). Forbes estimates that GDP growth in Russia this year will be 1.6%, the same as last year. Russian non-energy related exports seem to be on the increase, despite sanctions and has reached 44% of the total value of Russian exports. The value of energy related exports has been hit not only by the oil glut but by geopolitical issues, and it is likely that these issues will continue. It seems difficult to accept but perhaps the long-awaited diversification of the Russian economy may actually be starting.