Gazprom Retreats on Europe Export Outlook as Russian ADRs Drop

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OAO Gazprom slid to a seven-week low as Russian stocks slumped for a fourth day in New York after the country’s bleak outlook for natural gas sales to Europe damped the economic outlook in the world’s biggest energy exporter.

The American depositary receipts slumped 1.5 percent to $5.58. OAO Rosneft, the state-run oil producer, led a decline in the Bloomberg Russia-US Equity Index as Brent crude traded near the lowest level in six weeks.

Gazprom, Russia’s biggest company, fell after the Economy Ministry said the state-controlled natural gas producer will probably see lower gains in Europe, its biggest market, for at least four years amid lower prices and increasing competition. Brent crude, the oil grade traders use to price Russia’s main export blend, rose 0.8 percent to $62.58 a barrel after dropping 5.3 percent in the prior two days.

“Europe will remain the main market for Gazprom for a considerable period of time, and lower gas prices in the region will negatively impact the company’s revenue,” Andrey Polischuk, an oil analyst at Raiffeisenbank ZAO who rates the stock hold, said by phone Thursday. “It might mean that Gazprom will have to seek additional funding for its investments, from advance payments from its partners in the east or from loans.”

Europe Outlook

The company’s average price in Europe may drop to as little as $187 per 1,000 cubic meters next year, according to the Economy Ministry. That would be 23 percent less than Gazprom’s forecast of $242 for this year. The price might only return to the level estimated for this year in 2018, according to the ministry’s prediction.

The conflict in Ukraine has soured Russia’s gas relations with European Union nations, pushing the country to strengthen ties with China. Gazprom and China National Petroleum Corp. in May agreed to terms on a supply contract, and the company is planning $4 billion of spending this year on the project, Chief Executive Officer Alexey Miller said in April.

Russia’s economy contracted 1.9 percent in the first quarter, data showed on May 15, less than any analyst surveyed by Bloomberg had estimated. Higher oil prices should support corporate profits, Bank of America Corp. analyst Vladimir Osakovskiy said in a research note Thursday. Gross domestic product will probably shrink 2.8 percent this year, the bank said, after earlier predicting a 4 percent contraction.

Rosneft slid 9.6 percent to $4.50 in New York. The Bloomberg gauge of U.S.-traded Russian stocks slumped to 60.91, the lowest level in eight weeks.

The Market Vectors Russia ETF, the largest U.S. exchange-traded fund tracking the nation’s stocks, decreased 0.3 percent to $19.28. Futures on the dollar-denominated RTS Index expiring in June gained 0.2 percent to 99,480 in U.S. hours.

Moscow-based United Co. Rusal fell 0.5 percent to HK$4.29 at 10:47 a.m. in Hong Kong, heading for a third straight decline and the lowest close since Nov. 7.

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