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Energy minister names critical oil prices for Russian oil companies

January 15, 14:40 UTC+3
The official also pointed out that the ministry does not consider the possibility of oil prices falling to $10 per barrel
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© Viktor Drachev/TASS

MOSCOW, January 15. /TASS/. Oil prices falling to the level of prime costs, which amounts to $5-15 per barrel in Russia, would be critical for the Russian oil companies, Russian Energy Minister Alexander Novak said Friday in an interview with Rossiya 24 TV channel.

"The critical level for us is the level of production costs or $5-15 per barrel. Budget revenues and currency earnings would be affected the most by the falling prices," the Minister said.

According to Novak, this leads to a decline in economic growth rates. In such conditions for oil companies, a lot depends on the ruble exchange rate.

The official also pointed out that the ministry does not consider the possibility of oil prices falling to $10 per barrel.

"The decline in oil prices to $10 per barrel is unlikely. We do not consider this scenario," Novak noted.

According to the minister, agreement on oil production cut among OPEC member-states is unlikely.

"From our point of view, it is unlikely all countries even inside the OPEC reached an agreement, to say nothing of countries that are not OPEC members. This is because importer nations reducing oil import from global markets are exerting high influence at present," the minister said.

Countries have no common opinion on the production cut policy even inside the OPEC, Novak said. In particular, Saudi Arabia and Iraq scaled up production by 1.5 mln barrels a day in total, while the global market depends on the shale oil production at present, he added.

"Such agreements on global markets have very small effect at present and achievement of set goals is unlikely," the minister said.

Brent oil prices fell below $30 a barrel on Friday.

Novak also said the price of oil could reach $40-50 per barrel by the end of 2016, or as an average for the year.

"It's about $40-50. I think that we will see these figures - $40-50 by the end of the year, and perhaps even as an average for the year," he said in an interview with RBC TV channel.

According to Novak, this price is "fair and fundamental". "We need to understand that the current low oil prices will have quite a long-term run," the Minister noted.

The Russian federal budget for 2016 is based around the oil price of $50 per barrel. The Finance Ministry proposed to adjust the budget at the rate of $40 per barrel. Ministries and departments need to present their proposals on a 10% reduction of their spending to the Finance Ministry before mid-January. The adjusted budjet will be presented at the end of Q1 2016.

On Friday the price of the futures contract for Brent crude oil February delivery declined by 3% to $29.8 per barrel on the London Stock Exchange (ICE).

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