The Russian Minister of Economic Development, Maxim Oreshkin, said last week that the Kremlin expects the price of crude oil to weaken again to the $40 area and stay there.
“The basic precondition from the standpoint of oil price is that oil prices will drop to $40 per barrel in this year and remain at the level of $40 [per barrel] after that,” Oreshkin said. “The average annual oil price under the base case and the target scenarios is $45.6 per barrel in 2017, $40.8 per barrel in 2018, $41.6 [a barrel] in 2019, and $42.4 [per barrel] in 2020,” the minister added, reported Russian state news agency TASS.
The drop in crude prices will have a negative effect on the value of the Russian currency, the ruble. “According to our estimates, if the rate does not return to model values, an extra capital inflow of $18 bln will be required to maintain stability of the forex market and to keep such rate the capital inflow should be over $10 bln in general over the year. This is not a base case scenario for us and we therefore expect significant ruble weakening in current months,” Oreshkin said. The ministry predicts the dollar to be equal to 68 rubles at the turn of 2017 and 70.8 rubles by 2018 year-end in its base case macroeconomic scenario, again reported TASS.
The minister made clear that Russia remains a very popular market for investors and optimism is high for the future. “Russia is recently considered to be one of the best or even the best asset among developing economies. Extensive communications with foreign funds evidence very optimistic mood regarding the Russian economy and the Russian market. We note huge capital inflow to the domestic market in this regard, particularly related to proactive policy of OFZ bonds offering by the Finance Ministry on the internal market,” the minister said.