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Oil Prices Will Ease in 2012 on Stimulus Withdrawal, Russia's Kudrin Says

Russia, the world’s biggest energy exporter, expects the price of oil shipments to the global market to start decreasing next year as governments begin to withdraw stimulus measures, Finance Minister Alexei Kudrin said.

Urals, the nation’s major export oil blend, will stay above $90 a barrel for 12 months to 18 months, Kudrin told a press briefing in Washington, D.C., yesterday. The price will probably fall to $60 a barrel in the next two years and stay at that level for about six months, he said, reiterating a forecast he made a year ago.

“With oil prices above $110 a barrel we are already in the zone of a slowing global economy,” Kudrin told reporters. “We expect oil prices to begin to decrease next year because excessive liquidity will be withdrawn from the international markets.”

Urals, Russia’s benchmark export blend, climbed above $100 a barrel in February as unrest in north Africa and the Middle East disrupted some oil flows. The International Monetary Fund cut its 2011 growth forecasts for the U.S. and Japan on April 11, citing “key downside risks” tied to surging oil prices.

Russia’s budget deficit is expected to be between 1 percent and 1.4 percent of gross domestic product in 2011, Kudrin said. Inflation will be at “about 7 percent” in Russia in 2011, Kudrin also said.

The country will use windfall revenue from energy sales to replace about 280 billion rubles ($10 billion) of planned spending from its Reserve Fund, Kudrin said.

Windfall Revenue

The government will use part of the windfall oil revenue to avoid some of the planned borrowing, Kudrin said. It will borrow mostly on the domestic market and won’t approve any decisions on the foreign market for now, he said.

“If we are able to borrow on the domestic market without rates going significantly higher, we will be borrowing,’’ Kudrin said. “If not, we can use between $200 million and $400 million, not more than that, to replace what we had planned to borrow domestically.’’

Kudrin said he will resign as chairman of the board of ZAO Alrosa, the world’s biggest diamond miner by output, and as a chairman of VTB Group, Russia’s second-largest bank.

Medvedev Order

Russian President Dmitry Medvedev on April 2 instructed eight senior government officials, including Deputy Prime Minister Igor Sechin, who is chairman of the largest Russian oil company OAO Rosneft, to quit their jobs at state-owned companies by July 1. Independent directors should replace them to improve transparency, the president said.

Russia won’t extend a tax break on oil shipments from the Vankor field for OAO Rosneft, the country’s biggest oil producer, Kudrin said. The company has been allowed to pay a reduced fee on exports of oil from the Vankor field. The measure expires in May and won’t be prolonged, he said.

To contact the reporter on this story: Halia Pavliva in Washington at hpavliva@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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