Rosneft Sinks in New York as Oil Output Surges Amid Glut

OAO Rosneft posted the longest streak of weekly declines since March 2013 as Russian energy producers sank after the country boosted oil output amid a global supply glut that has pushed prices to five-and-a-half-year low.

The state-run producer tumbled for a sixth week, dropping 3.1 percent to close at $3.49 in New York on Jan. 2. A Bloomberg index of the most-traded Russian stocks in the U.S. retreated 5.6 percent during the period. OAO Surgutneftegas slid 9.1 percent to $5.21. OAO Lukoil dropped 5.7 percent to $38.95.

Crude, Russia’s top export and a major source of budget revenue, last year capped its worst annual decline since 2008 as U.S. producers and the Organization of Petroleum Exporting Countries ceded no ground in their battle for market share amid a supply glut. The oil company stocks retreated as Energy Ministry data showed Russian output rose 0.3 percent in December to a post-Soviet record of 10.667 million barrels a day.

“The circle closed as the country has been trying to increase revenue from oil sales following the decline in prices,” Mark Rubinstein, the head of the corporate business department at OOO Yar-Bank in Moscow, said by phone on Jan. 2. “If you can’t sell it at a higher price, you try to sell more at a lower price. That’s the logic, and it’s natural as the country depends on oil.”

Crude’s Plunge

Brent crude, the oil grade traders use to price Russia’s main export blend, decreased 48 percent last year. The decline stoked a 46 percent plunge in the ruble, the most since the nation defaulted on its debt in 1998, and pushed the economy to the brink of recession. Inflation at 11.4 percent in December was the fastest in more than five years.

Gross domestic product may contract about 4 percent in 2015 if oil prices stay at $60 a barrel, according to Finance Minister Anton Siluanov. The risk of Russia sliding into recession is at a record high, according to a Bloomberg survey of economists, who forecast the country won’t see growth for four consecutive quarters.

The Bloomberg Russia-US Equity Index increased to 49.79 on Jan. 2. Stocks on the gauge sell for an average 4.3 times projected 12-month earnings, compared with a three-year average multiple of 6.2. Moscow markets reopen today after the New Year holiday.

The Market Vectors Russia ETF, the biggest exchange-traded fund tracking Russian stocks, increased 1.1 percent to $14.79 in New York on Jan. 2, trimming decline last week to 7.7 percent. Shares in the ETF sank 49 percent last year, the deepest decline since 2008.

Russia’s energy industry also has been pressured by international sanctions linked to the Ukraine conflict. Rosneft, run by Igor Sechin, a close ally to President Vladimir Putin, was specifically targeted. The company gets approximately three-quarters of its annual revenue from exports to Europe and Asia, while about 20 percent comes from Russia, data compiled by Bloomberg show.

“Plunging oil prices, negative political sentiment linked to the Ukraine crisis and international sanctions are those factors that make investors extremely cautious when it comes to Russian stocks, no matter how cheap they are,” Rubinstein said.

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