The Russian Central Bank deems the oil projections of the finance ministry to be overly optimistic

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Last Updated on August 27, 2022 by Bitfinsider

The finance ministry had proposed certain conditions for a new budget rule that would use energy money to increase state reserves, but the central bank of Russia indicated on Friday that these parameters were overly optimistic.

Russia aims to reinstate a budget provision that directs oil earnings into the National Wealth Fund (NWF) once prices rise over a particular level. Russia is aiming to increase reserves as sweeping western sanctions have restricted its access to international markets.

The conditions that had been suggested by the finance ministry were a crude oil price of $60 per barrel and a daily output of 9.5 million barrels.

The previous budget regulation said that oil income would be redirected at a price of $40 per barrel, with an annual 2% rise, and was stopped despite tough sanctions imposed after Moscow began what it terms a “special military operation” in Ukraine on February 24.

Russian flagship oil Urals mix is currently being priced above $80 a barrel, about $20 less than the international Brent benchmark.

But in the medium and long term, central bank analysts said, a price for Urals oil at $60 seems significantly above the equilibrium level when taking into account things like the price necessary to make shale oil production profitable and the price anticipated by major oil-producing countries in their budgets.

According to the central banks, the high oil price objective could present concerns for developing the NWF. The analysts also noted that the 9.5 million bpd production target has a comparable, albeit lower, risk.

Russia produced 10.76 million barrels per day (bpd) of oil and gas condensate in July, up from 10.70 million bpd in June, according to the statistics office Rosstat. It was around 10 million bpd last month without condensate.

Vladimir Putin, the president of Russia, has not yet given his approval to the budget rule’s final draft.


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Disclaimer: The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, legal, tax or other advice. Investing in or trading cryptocurrency or stocks comes with a risk of financial loss.

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