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Ex-Finance Minister Kudrin doubts agreements on oil production cuts will be implemented

December 14, 2016, 13:22 UTC+3

"This, unfortunately, is the problem that had already developed in OPEC - when commitments are not always fulfilled," ex-Finance Minister Alexei Kudrin said

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Head of Center for Strategic Development Aleksei Kudrin

Head of Center for Strategic Development Aleksei Kudrin

© Piotr Kovalev/TASS

MOSCOW, December 14. /TASS/. Chief of the Center for Strategic Research (CSR) and ex-Finance Minister Alexei Kudrin doubts that the agreement on reduction of oil production will be implemented by all countries, he told reporters on Wednesday.

"I think that the agreement of OPEC is a reasonable measure. Of course, we cannot be sure that all the obligations will be met. This, unfortunately, is the problem that had already developed in OPEC - when commitments are not always fulfilled. I do not believe in the long-term impact of this measure on oil prices, this will rather have the effect for a year and a half - two years," Kudrin said.

According to him, this decision also carries the risks of increasing shale oil production that does not fall under the restrictions.

Ruble exchange rate fluctuations not expected

Serious ruble exchange rate fluctuations are not expected at oil prices below $60 per barrel and below, Kudrin said.

"The current ruble exchange rate will follow oil prices. The policy of floating rate was chosen by the Central Bank and it is supported by the government. I think that if oil prices will not go higher than $60, three should not be any serious concerns about the exchange rate," he said.

The ruble currently grows following oil prices after OPEC’s decision to reduce oil production. Since the end of November price of Brent crude oil rose by 17% and exceeded $55 per barrel, while the dollar exchange rate fell by 7% dropping below 61 rubles.

Forming reserves

 Forming reserves before 2020 would be possible if oil prices stabilize at the level above $60 per barrel, according to Kudrin.

"With this budget deficit, if oil prices will be below $60 or at $60, special reserves are unlikely to be created before 2020," he said.

According to Kudrin, Russia should have its own reserves, and government policy to preserving surplus funds in the National Wealth Fund is reasonable.

Earlier it was reported that the Russian Reserve Fund will be fully spent in 2017, according to the draft budget for 2017-2019 prepared by the Finance Ministry and posted on the legal information website.

In particular, the Finance Ministry plans to spend 1.15 trillion rubles ($18.4 bln) from the Reserve Fund and 659 bln rubles ($10.5 bln) from the National Wealth Fund (NWF) in 2017, the document said.

However, Russia’s Finance Minister Anton Siluanov said that Russia may get additional revenues in 2017 thanks to the growth of oil prices. With oil prices around $50 per barrel the budget may receive additional 1 trillion rubles ($16.3 bln), half of these revenues may replenish the Reserve Fund.

Oil output reduction agreement 

On December 10, at the meeting of OPEC and non-OPEC countries in Vienna, the agreement on optimization of oil production was joined by 11 countries outside of OPEC. "For the first time this number of countries takes joint action. I would like to remind, this is all OPEC countries and 11 countries outside of OPEC," Russia’s Energy Minister Alexander Novak said.

According to Novak, OPEC member countries confirmed their intention to reduce oil production by 1.2 mln barrels per day, which together with the countries outside of the organization it will total 1.7-1.8 mln barrels per day.

On November 30, OPEC countries agreed to cut oil production to 32.5 mln barrels per day, which means those countries will reduce their daily average output by 1.164 mln barrels starting January 1, 2017.

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