Is Putin Getting Russia's Economy All Wrong?

[Gregory Purcell + 94]

3 hours ago, ronwagn said:

So, are you going to divest?

Nope, I plan on buying more perhaps in April or May when I believe oil will hit it's low point.  The low price producers with low debt are going to win this market share/ price war.

[0R0 + 6,251]

4 hours ago, Chris555 said:

No it has not. It has about 10% of Russia's population. 

 

Really? Why are the Russian companies massively profitable, then, while the U.S. shale companies on the brink of bankruptcy? I could reveal all your other lies as well but I just don't have the time for that at the moment. 

Because their debt from the early 2010s was refinanced. $18B of Gazprom debt was refinanced into the NWF (National Wealth Fund) backed by the Bank of Russia (the CB). There has been a push for Russia to displace imports with domestic manufacturing so that the drops in the Ruble which make oil profitable in Russia don't decimate living standards. But they have not actually succeeded. Russians buy domestic production because it is cheap enough. Not because it is what they want. It is a steady trend back to "they pretend to pay us and we pretend to work". It does not end well. 

The "profits" of Russia's oil companies are only possible because they had refinanced 5 years ago with central bank and state backing. Saves them $10/Bbl today, was $20/Bbl in financing costs saved from 2014. 

You can also look at their amortization schedules and reserve recognition changes that go into their book value when the drill a hole into a deposit. Both are far from conservative. US oil companies have been lobbying for similar treatment of their reserves to extend recognition from the current 5 years to 10 years of forward production plans. 

Finally, they don't really pay leases. If you take debt and lease payments out then US shale frackers would save $15-20/bbl and would have been wildly profitable last year too. 

[Chris555 + 8]

3 hours ago, 0R0 said:

Because their debt from the early 2010s was refinanced. $18B of Gazprom debt was refinanced into the NWF (National Wealth Fund) backed by the Bank of Russia (the CB). There has been a push for Russia to displace imports with domestic manufacturing so that the drops in the Ruble which make oil profitable in Russia don't decimate living standards. But they have not actually succeeded. Russians buy domestic production because it is cheap enough. Not because it is what they want. It is a steady trend back to "they pretend to pay us and we pretend to work". It does not end well. 

The "profits" of Russia's oil companies are only possible because they had refinanced 5 years ago with central bank and state backing. Saves them $10/Bbl today, was $20/Bbl in financing costs saved from 2014. 

You can also look at their amortization schedules and reserve recognition changes that go into their book value when the drill a hole into a deposit. Both are far from conservative. US oil companies have been lobbying for similar treatment of their reserves to extend recognition from the current 5 years to 10 years of forward production plans. 

Finally, they don't really pay leases. If you take debt and lease payments out then US shale frackers would save $15-20/bbl and would have been wildly profitable last year too. 

"The "profits" of Russia's oil companies are only possible because they had refinanced 5 years ago with central bank and state backing."

Gazprom and the other Russian energy companies were massively profitable even 5 years ago. So they did not need any government bailout. Some of the biggest banks in Russia are majority owned by the government (and massively profitable, too), as is Gazprom, so any financing deal between them is just business as usual, especially during sanctions from the West.

"they don't really pay leases"

Yes they pay, in form of mineral extraction tax, and they also pay export duties. A lot of it, it is the main source of Russia's foreign exchange reserves of $560B. (And not $100B, as you alleged, incorrectly to say the least, in one of your other comments.)

So maybe try to stop lying, the anti-Russian lying propaganda has been quite useless for the last 5-6 years, as you can see.

 

 

[0R0 + 6,251]

1 hour ago, Chris555 said:

"The "profits" of Russia's oil companies are only possible because they had refinanced 5 years ago with central bank and state backing."

Gazprom and the other Russian energy companies were massively profitable even 5 years ago. So they did not need any government bailout. Some of the biggest banks in Russia are majority owned by the government (and massively profitable, too), as is Gazprom, so any financing deal between them is just business as usual, especially during sanctions from the West.

"they don't really pay leases"

Yes they pay, in form of mineral extraction tax, and they also pay export duties. A lot of it, it is the main source of Russia's foreign exchange reserves of $560B. (And not $100B, as you alleged, incorrectly to say the least, in one of your other comments.)

So maybe try to stop lying, the anti-Russian lying propaganda has been quite useless for the last 5-6 years, as you can see.

 

 

$100B was the excess reserves over external debt

I know they are massively taxed and provide the government with most of its revenue. Which is why they are happy to turn the economy upside down to keep those cash flows coming in both in forex and local currency. 

Where do you suppose their financial distress of 2016 came from if everything was so hunky dory. with cash coming out their ears, massively in the black as oil revenue went from  $181 Bil in 2021 to $74 B. 6.3 Trillion Rubles to 5.6 Trillion Rubles. 

Obviously letting your currency slide from 35 to 76 to the dollar was no great shakes and didn't cost anyone anything. The Russian people must have rejoiced as prices rose 30% from 2014 to 2016. Which is why they were so happy they decided not to ruin it with new children as births went from 1.94 mil to 1.7 by 2017. And continued dropping. Fertility dropped 20% over the period. Russians must be so optimistic because their national Ruble oil revenue is growing. 

Rural farming communities who buy fertilizer and diesel at the nicely steady price dictated by the ruble price of oil and sell their produce in rubles to the financially stressed Russian public saw their margins fall so much that rural fertility rates fell 26% by 2018. 

https://en.wikipedia.org/wiki/Demographics_of_Russiahttps://en.wikipedia.org/wiki/Demographics_of_Russia 

This "insensitivity" to the oil price is a cruel joke for the Russians. This game is a loser for Putin if he persists. Killing off another quarter off the next generation of Russians. 

[Douglas Buckland + 6,308]

3 hours ago, 0R0 said:

$100B was the excess reserves over external debt

I know they are massively taxed and provide the government with most of its revenue. Which is why they are happy to turn the economy upside down to keep those cash flows coming in both in forex and local currency. 

Where do you suppose their financial distress of 2016 came from if everything was so hunky dory. with cash coming out their ears, massively in the black as oil revenue went from  $181 Bil in 2021 to $74 B. 6.3 Trillion Rubles to 5.6 Trillion Rubles. 

Obviously letting your currency slide from 35 to 76 to the dollar was no great shakes and didn't cost anyone anything. The Russian people must have rejoiced as prices rose 30% from 2014 to 2016. Which is why they were so happy they decided not to ruin it with new children as births went from 1.94 mil to 1.7 by 2017. And continued dropping. Fertility dropped 20% over the period. Russians must be so optimistic because their national Ruble oil revenue is growing. 

Rural farming communities who buy fertilizer and diesel at the nicely steady price dictated by the ruble price of oil and sell their produce in rubles to the financially stressed Russian public saw their margins fall so much that rural fertility rates fell 26% by 2018. 

https://en.wikipedia.org/wiki/Demographics_of_Russiahttps://en.wikipedia.org/wiki/Demographics_of_Russia 

This "insensitivity" to the oil price is a cruel joke for the Russians. This game is a loser for Putin if he persists. Killing off another quarter off the next generation of Russians. 

Interesting analysis...

[Andrew Neopalimy + 14]

- Russia is satisfied with the price of oil at $ 45-55 per barrel, which will allow the country to implement projects in the Arctic. This was stated in an interview with Reuters by Deputy Minister of Energy of the Russian Federation Pavel Sorokin. https://tass.ru/ekonomika/7952849

- The countries that signed the Agreement on the Reduction of Oil Production made a final decision on what would happen before the expiration of the current agreement at the end of June, Russian Deputy Energy Minister Pavel Sorokin said. https://www.reuters.com/article/us-oil-opec-russia-sorokin/opec-to-take-consolidated-decision-on-output-pact-russias-sorokin-idUSKCN1TB11E

 

[Douglas Buckland + 6,308]

6 minutes ago, Andrew Neopalimy said:

- Russia is satisfied with the price of oil at $ 45-55 per barrel, which will allow the country to implement projects in the Arctic. This was stated in an interview with Reuters by Deputy Minister of Energy of the Russian Federation Pavel Sorokin. https://tass.ru/ekonomika/7952849

- The countries that signed the Agreement on the Reduction of Oil Production made a final decision on what would happen before the expiration of the current agreement at the end of June, Russian Deputy Energy Minister Pavel Sorokin said. https://www.reuters.com/article/us-oil-opec-russia-sorokin/opec-to-take-consolidated-decision-on-output-pact-russias-sorokin-idUSKCN1TB11E

 

All good I suppose, except for the price of oil is now between $30 to $34 per barrel.

Think the Russians are ‘satisfied’ with that?

[Andrew Neopalimy + 14]

43 минуты назад Дуглас Бакленд сказал:

В настоящее время цены на нефть составляют от 30 до 34 долларов за баррель.

Думаешь, россияне "довольны" этим?

On average, oil companies spend up to 80% of their profits on taxes, which is 43–45% of the Russian budget. We have 75% of the retail price for gasoline and diesel - it's taxes.

https://vygon.consulting/upload/iblock/269/vygon_consulting_tax_rent.pdf

We Russians / Russians are sure that in this multi-way oil war "US vs RF +KSA" Russia will not lose its market share. In addition, these fluctuations in price are almost not reflected on the people / citizens.

11 минут назад Андрей Неопалимый сказал:

 

 

Edited March 12, 2020 by Andrew Neopalimy

[Douglas Buckland + 6,308]

I really didn’t say that as I can neither read nor write in the Cyrillic alphabet.

Technically this is libel...

[ronwagn + 6,290]

14 hours ago, Andrew Neopalimy said:

On average, oil companies spend up to 80% of their profits on taxes, which is 43–45% of the Russian budget. We have 75% of the retail price for gasoline and diesel - it's taxes.

https://vygon.consulting/upload/iblock/269/vygon_consulting_tax_rent.pdf

We Russians / Russians are sure that in this multi-way oil war "US vs RF +KSA" Russia will not lose its market share. In addition, these fluctuations in price are almost not reflected on the people / citizens.

 

Just before becoming official dictator for life, Putin promised to better the deplorable state of the poor in Russia. He will not be able to even maintain their status with low oil and gas prices. The Russian people are screwed and will become more restless just as those in Saudi Arabia, Nigeria and all overly oil and gas dependent counties. The prices are a major loss for all of those countries. In America it will mainly hurt Texas, Oklahoma, New Mexico, and the Dakotas. Canada also.

Edited March 13, 2020 by ronwagn
addition

[surrept33 + 609]

5 hours ago, Douglas Buckland said:

All good I suppose, except for the price of oil is now between $30 to $34 per barrel.

Think the Russians are ‘satisfied’ with that?

I think the Russians were most definitely surprised as anyone else that KSA went shock and awe after the OPEC deal collapsed. They were talking about a longer term broader strategic alliance even in early February:

 

From https://www.wsj.com/articles/saudi-russia-disclose-dueling-output-plans-amid-intensifying-oil-market-war-11583835347
 

Quote

Some oil officials say they struggle to see the logic behind Saudi Arabia’s decisions. Others see the battle as tied to Prince Mohammed’s recent efforts to tighten his grip on power and raise his international clout, according to people involved in the OPEC talks.

Russia’s failure to find common ground with Saudi Arabia and OPEC on oil cuts was preceded by talks in early February between Riyadh and Moscow that focused on the possibility of forging a broader, long-term alliance. Under one scenario, Saudi Arabia would have sped up its investments inside sanctions-hit Russia and backed the Kremlin’s military efforts in Syria, according to people familiar with the matter.

Ultimately, the crown prince didn’t commit to a deal, say the people familiar with the matter, because he didn’t want to alienate the U.S. Weeks later, roughly at the same time that Russia was refusing to endorse the Saudi-backed plan to cut oil output, Mr. Putin was initiating a rapprochement with Turkey, a Saudi foe, the people said.

“It’s all about egos now, not about the oil market,” said a Saudi-government adviser.

Meanwhile, Prince Mohammed saw the OPEC debate as a way to assert his broad influence over the kingdom’s oil policies and to prove to his older brother, Saudi energy minister Prince Abdulaziz bin Salman, that he could force Russia’s hand, according to people familiar with his thinking.

In a terse phone call to Prince Abdulaziz late Thursday, the crown prince overruled his brother, who had agreed to a three-month production cut with OPEC, and extended the proposed cuts through the end of the year, these people said.

The crown prince ordered the minister to force OPEC to adopt the decision—even if that meant risking any hope that Russia would join in, they said.

Now the kingdom is pursuing a strategy of undercutting its rivals by drowning markets with cheaper oil—a move that has a tendency to backfire, say longtime market watchers.

On Saturday, the Saudi energy ministry told Aramco officials that instead of cutting production, they should pump more oil and lower the price. Saudi Arabia soon spread the word throughout the market. “It was the Saudi declaration of war against Putin,” said a senior Saudi official.

Within hours, officials at the finance ministry were tasked with preparing a budget scenario that envisions benchmark Brent crude prices dropping into a $12-$20 a barrel range. All Saudi ministries were also asked to cut their spending significantly to prepare for this scenario.

But the strategy has backfired before.

In 2014, then-Saudi oil minister Ali al-Naimi persuaded OPEC to pump at will to compete with U.S. shale producers. His rationale was that the cartel’s members had the ability to produce at extremely low costs. But after the price of Brent crude fell below $28 a barrel in early 2016, the Saudi royal family fired him. His successor, Mr. Falih, negotiated a pact between OPEC and Russia to cut production in the first OPEC+ deal. Within months, oil prices more than doubled.

The move to depress prices also missed its mark in the 1980s and led to a period known in oil circles as the “Lost Decade.” In 1986, OPEC faced competition from rising North Sea production. Saudi Arabia’s delegation was so upset about OPEC members flouting the group’s production agreements that it unleashed a flood of oil that sank prices for a prolonged period.

Eventually, Saudi Arabia backtracked and cut production, but the move wasn’t a complete failure, as it helped score a political victory against the Soviet Union. Riyadh had been backing insurgents battling Russia in Afghanistan—many of whom would later found al Qaeda. As the oil price fell to around $30 a barrel, Russia faced a budget crisis that contributed to food shortages and an end to its war in Afghanistan. Its then-leader Mikhail Gorbachev retreated from Kabul and launched the restructuring of Russia under his perestroika policy.

Russia is better prepared to weather low oil prices than in the past. Oil is now accounts for less than a third of budget revenue. The country has also accumulated massive reserves. The Russian finance ministry said Monday that it could withstand 10 years of prices at $25 to $30 a barrel.

Still, some Russian producers say the oil-market war is excessive.

“I’m in shock. This is a very unexpected, irrational decision to put it mildly,” Leonid Fedun, vice president of Russian private producer Lukoil was reported as telling Russian newspaper the Bell. Russian oil companies would like to increase production, he said, but that won’t make up for losses from falling prices.

The mood is more somber in Saudi Arabia, which needs oil prices over $60 a barrel to balance its budget, according to Saudi officials. The kingdom is now contending with its own coronavirus outbreak, moving Monday to suspend all air travel with many of its neighbors.

Saudi Arabia’s national oil company Aramco fell about 7% to 27.95 riyals ($7.45) a share on the Saudi domestic exchange Monday. The Saudi price decrease has “literally burned all global energy investors,” said a Saudi official. “[Saudi Aramco] Won’t sell a share to foreigners again,” he said, referring to the Crown Prince’s plan to list Aramco internationally.

 

 

[pscoughlin + 8]

Having worked in both Saudi and Russia I'm of the opinion that the average Russian citizen will have a greater tolerance for potentially harder economic times than the average Saudi citizen.  I look for Saudi to blink first in this situation. From what I've seen Russian television is putting the blame for the current situation at the feet of Saudi and the US. I doubt Putin will lose much if any support over this.

Edited March 12, 2020 by pscoughlin

[Prometheus1354 + 178]

On 3/11/2020 at 12:48 PM, Ward Smith said:

Solar in Minnesota is just plain stupid. They won't produce at all in the winter months, when the power is really needed. 

No kidding!  I am truly surprised that any large scale solar projects are planned for MN or Any of the upper Midwest states.  I know Iowa has had solid success with a multitude of Wind power projects. But Solar?  Can't see it.

In fact, I'd say it's plausible those states along the I-40 corridor would in large part be solid locations for Wind Farms.  

Not sure but it would be my guess the upper Midwest states (i.e. the Corn/Soybean Belt) should be getting pretty decent pricing for the Propane needed to run driers come harvest time do too their proximity to the Bakken...

[Chris555 + 8]

You will know when the current situation is hurting the Russians by reading in the news that the Suez Canal got closed or the Saudi oil facilities are disrupted in other ways.

[El Nikko + 2,145]

1 hour ago, pscoughlin said:

Having worked in both Saudi and Russia I'm of the opinion that the average Russian citizen will have a greater tolerance for potentially harder economic times than the average Saudi citizen.  I look for Saudi to blink first in this situation. From what I've seen Russian television is putting the blame for the current situation at the feet of Saudi and the US. I doubt Putin will lose much if any support over this.

It's also worth remembering how much economic pain this will bring to Iran, I'd expect things to hot up in Yemen and potentially more missile/drone attacks in the next week or two.

[Ward Smith + 6,615]

26 minutes ago, El Nikko said:

It's also worth remembering how much economic pain this will bring to Iran, I'd expect things to hot up in Yemen and potentially more missile/drone attacks in the next week or two.

It (almost) worked once, will it (almost) work again? 

Will Iran shoot down another airliner? 

Inquiring minds want to know

[0R0 + 6,251]

3 hours ago, surrept33 said:

I think the Russians were most definitely surprised as anyone else that KSA went shock and awe after the OPEC deal collapsed. They were talking about a longer term broader strategic alliance even in early February:

 

From https://www.wsj.com/articles/saudi-russia-disclose-dueling-output-plans-amid-intensifying-oil-market-war-11583835347
 

 

The issue was that Putin at the behest of the Russian oil companies was looking to have a huge future production increase with large scale increases of output to 2025 while Saudi was idling 2 MBbl/d of output. 

The Putin demand was at odds with the purpose of the OPEC+ arrangement and was 180 degrees opposite of the Saudi direction. Putin's idea was ludicrous in the context of the market disruption and the fillup of global storage.

Saudi has no choice but to FORCE Russia to shelve investments and clog up their system to the point of shutting down a large facility in Russia.

The Saudis do understand the US market and that it is composed of independent actors, something Russia just does not get. So Saudi views that as a "natural condition" and after the 2015 rout in oil failed to turn things, they understand it. Russia does not, and presumes that it is a Trump policy intended to hurt them, rather than the way it actually is that Trump is simply backing up a US industry against foreign competitors. He isn't controlling the industry 

Putin, disregarding the actual damage to his people, is trying to play a game where his oil companies ramp up investment while Saudi cuts output. 

Saudi is calling the bluff, and acting forcefully to destroy as much of Russia's oil revenue as it can. It will have a full up tanker waiting at all ports where Russia makes delivery to provide supply without regard to price so that the Russian tankers remain full and on the open sea, and Russia sees less revenue due to less volume, not just lower price. 

Russia has to come to an agreement where they actually cut output NOW. Or shelve the development projects. As this goes on, they are more likely to be required to do both. 

The Shale narrative is Russian PR. Nothing much to do with the subject. 

The Saudi and Russian cooperation was based on creating a false understanding on the Saudi side of what Russia is intending. At the same time, Saudi is also starting up a 2024 Nat Gas fracking operation to compete with Russia US and Qatar. Thus opening up another field of Saudi Russian competition. 

 

 

[0R0 + 6,251]

17 minutes ago, Ward Smith said:

It (almost) worked once, will it (almost) work again? 

Will Iran shoot down another airliner? 

Inquiring minds want to know

They will quarantine Qom...

Then there will be no Iran government. 

 

[ceo_energemsier + 1,818]

On 3/8/2020 at 10:49 PM, Meredith Poor said:

As is probably expounded on elsewhere, Putin seems to have it in for the US, or at least the current US administration. The idea is basically to run fracking companies out of business.

Russia could, in theory, do fine without oil revenues. This would simply require a massive expansion of other elements in the economy, elements that require a technological sophistication Russia doesn't apparently have. Putin and his economic advisers may see a way to the end of oil. They may as well work toward that end, since they'll have to face it sooner or later. More likely sooner.

It's certainly interesting to consider that Russia could generate enough electricity via wind power to power all of Europe. This would replace gas blackmail with electricity blackmail. They would have to find some source for the turbines, which appears at the moment to be problematical. They would also have to pave Belarus and Poland with transmission lines.

Without oil revenues, Russia will  suffer a major economic loss and Rootin Tootin Putin will lose his power grab.

[ceo_energemsier + 1,818]

2 hours ago, 0R0 said:

The issue was that Putin at the behest of the Russian oil companies was looking to have a huge future production increase with large scale increases of output to 2025 while Saudi was idling 2 MBbl/d of output. 

The Putin demand was at odds with the purpose of the OPEC+ arrangement and was 180 degrees opposite of the Saudi direction. Putin's idea was ludicrous in the context of the market disruption and the fillup of global storage.

Saudi has no choice but to FORCE Russia to shelve investments and clog up their system to the point of shutting down a large facility in Russia.

The Saudis do understand the US market and that it is composed of independent actors, something Russia just does not get. So Saudi views that as a "natural condition" and after the 2015 rout in oil failed to turn things, they understand it. Russia does not, and presumes that it is a Trump policy intended to hurt them, rather than the way it actually is that Trump is simply backing up a US industry against foreign competitors. He isn't controlling the industry 

Putin, disregarding the actual damage to his people, is trying to play a game where his oil companies ramp up investment while Saudi cuts output. 

Saudi is calling the bluff, and acting forcefully to destroy as much of Russia's oil revenue as it can. It will have a full up tanker waiting at all ports where Russia makes delivery to provide supply without regard to price so that the Russian tankers remain full and on the open sea, and Russia sees less revenue due to less volume, not just lower price. 

Russia has to come to an agreement where they actually cut output NOW. Or shelve the development projects. As this goes on, they are more likely to be required to do both. 

The Shale narrative is Russian PR. Nothing much to do with the subject. 

The Saudi and Russian cooperation was based on creating a false understanding on the Saudi side of what Russia is intending. At the same time, Saudi is also starting up a 2024 Nat Gas fracking operation to compete with Russia US and Qatar. Thus opening up another field of Saudi Russian competition. 

 

 

 

Aramco is already beating the Russians in the price war by cutting prices and offering deep discounts to their customers in Europe, thereby stranding URALS crude. Buyers are taking up Aramco barrels and not URALS at those prices. There a several vessels of URALS with no buyers and this will continue. Aramco will keep cutting the prices even if they have to go to 25$/bbl .

[0R0 + 6,251]

2 hours ago, ceo_energemsier said:

 

Aramco is already beating the Russians in the price war by cutting prices and offering deep discounts to their customers in Europe, thereby stranding URALS crude. Buyers are taking up Aramco barrels and not URALS at those prices. There a several vessels of URALS with no buyers and this will continue. Aramco will keep cutting the prices even if they have to go to 25$/bbl .

Any idea how much crude has been rejected so far? It will be a week this weekend, should give us a fair idea of how effective the Saudi "deny revenue" campaign is working. 

[zextaz + 20]

Russia pumped up gold and bitcoin and shorted oil and entire stock market they are making billions

[zextaz + 20]

stealing 90% of the "10 year bull market" they created a panic and start offloading oil and short selling stocks while everyone panic they will make trillions in market money and funnel it trough bitcoin at this rate they will own 90% of USA oil business once they reverse their position nothing we can do free market

[Chris555 + 8]

2 hours ago, ceo_energemsier said:

 

Aramco is already beating the Russians in the price war by cutting prices and offering deep discounts to their customers in Europe, thereby stranding URALS crude. Buyers are taking up Aramco barrels and not URALS at those prices. There a several vessels of URALS with no buyers and this will continue. Aramco will keep cutting the prices even if they have to go to 25$/bbl .

Really?

[ceo_energemsier + 1,818]

21 minutes ago, Chris555 said:

Really?

Yes

https://ca.reuters.com/article/businessNews/idCAKBN20Z2LH