The Russian economy (catch all)

[Dayuhan]

Dayuhan--all good points but then is this big but---initially when the Crimea started Russia was talking about needing a 95 base price, then as the Ukraine hit it was talking about a price of 104 and the last three days as been in the 114 range.

Given the extent of the change over a very limited time, and given that we've no access to the process by which these numbers were generated and we've no idea what agendas are being pursued by the people announcing the numbers... take them all with multiple grains of salt.

Certainly lower oil prices will cause economic stress, but there's little reason to expect that stress to change Russian policy on the Ukraine, or on anything else.

Then there was a press release yesterday stating they could absorb all financial hits by using the cash flow on oil/gas that is coming in--BUT that has been long planned for other things they have designed it to be used for---appears to me to be just one big Ponzi scheme simply moving the money around and appearing to be fifthly rich.

I generally give Russian press releases about as much credence as I give to yesterday's toilet paper. That Ponzi scheme is of course quite common, and while it eventually catches up, do you think it will catch up soon enough to have an impact on events in the Ukraine?

Then yesterday a short tweet came out of eastern Europe indicating that the Urals fields are in fact in a major decline and will be by 2017 producing nowhere close to what they are now--that is why the heavy new push into the Artic region.

Twitter is not generally a vehicle for serious analysis, and unless it links to credibly sourced material such things are generally best ignored. The Russian oil industry does of course face major problems across the board, and those will be exacerbated if prices stay below $100, but that picture has been analyzed to death and there's little reason to suggest sudden or recent changes in the picture. It's a big problem that Moscow will have to deal with, but again it's far from certain that it will affect Russian policy in the Ukraine.

And the sanctions yesterday were designed to do exactly that limit and or stop any further Artic development because Russia needs western tech of that type of drilling and this is the kicker--all oil/gas services companies of the west were in fact told yesterday to stop work in Russia---which Russia relies on heavily for their field maintenance.

It will be interesting to see what they do. They may decide to go fro broke, take what they want in the Ukraine and impose a fait accomplii, knowing that sanctions will degrade over time once the deed is done. They may also turn to China, though brother Han drives a hard bargain and gives nothing away: the quid pro quo will probably be painful.

#Russia could see its $19B surplus become a deficit by end of 2014, as oil prices continue to slide.

Certainly true, but as all Americans know, governments routinely operate at deficits for many years. Again, a problem for Moscow but not necessarily a problem that will make them less aggressive. They could turn more aggressive, if they decide that a bit of jingoistic fervor will provide a distraction from economic issues.

IMO--there is an unusual effect going on right now in the sour oil side of the house---virtually low to no demand and a continuing sliding price base that sees no bottom yet.

On what evidence? I see nothing really unusual, and nothing that's at all specific to "sour crude" or to Russian exports. Demand is there, of course, it's just somewhat below expectations. US production is up, the fear factor in Iraq is receding, and Libya seems to be pumping again, despite the mess. Normal ups and downs, really. Some producers, Russia among them, made some unsupportable estimates of the cash they'd have available, and will pay a price. It will hit a lot of producers harder than it hits Russia: keep an eye on Nigeria and Venezuela, in particular.