Kremlin considers slashing oil price forecast amid fiscal strain
The Kremlin is considering changing the budget rule and adopting a lower forecast for oil prices—from $60 to $50 per barrel—Bloomberg reports. This decision is in response to the drop in commodity prices and the growing financial burden of the war in Ukraine.
When drafting this year's budget, Russia assumed the price of oil would be $60 per barrel. According to Bloomberg sources, the Kremlin is considering the possibility of reducing this forecast to $50 per barrel. Discussions on this matter are at an early stage, and any decisions may necessitate cuts in expenditures.
When commodity prices exceed the amount assumed in the budget, the surplus goes to the National Wealth Fund. Bloomberg explains that this fund acts as a safeguard: if prices drop, the government uses its resources to compensate for lower revenues.
Income from fuel exports constitutes 30 percent of Russia's budget.
Fund depleted due to war
The agency reminds us that the National Wealth Fund has been significantly depleted due to the Kremlin's financing of military actions in Ukraine. At the beginning of 2022, it contained 8.4 trillion rubles, and now it stands at 3.3 trillion (42 billion Canadian dollars).
During Saturday's meeting, OPEC+ countries decided to increase oil supplies by 411,000 barrels per day in June, marking the second consecutive month of growth. Saudi Arabia, the leader of the oil cartel, warned group members who exceed established production limits that they may face further supply increases.
OPEC+, which includes the Organization of the Petroleum Exporting Countries and allies, such as Russia, continues to maintain production restrictions at nearly 5 million barrels per day. Many of these cuts are expected to remain in effect until the end of 2026. The next full ministerial meeting of the group is scheduled for May 28 at 10:00 AM Eastern Time.
Ajay Parmar, director of oil markets analytics at ICIS, observed that the additional oil being supplied by OPEC+ is unlikely to be fully taken up by the market.
The expert also noted that fuel demand is rising only slightly, particularly in the wake of new tariffs recently implemented by the United States against its trade partners.
