Following oil prices plummeting to an 18-year low on March 18 as a result of the coronavirus-fuelled crisis and oversupply led by Saudi Arabia and Russia cutting oil prices and boosting exports, the Soviets remain in a strong position to weather out the storm.
Foot on the accelerator
Anna Belova, Senior Oil & Gas Analyst at data and analytics company GlobalData, said Russian oil and gas operators showed no signs of slowing down as both Russia and the Saudis continued to slash spending.
“Shielded by devaluing currency and progressive taxes that automatically adjust to oil price, producers in Russia remain above the breakeven level even at crude prices below US$24 per barrel. This price represents a 66% drop from the year high on January 6; however, in Russia, the state absorbed the majority of losses with Mineral Extraction Tax (MET) and export duty decreasing by US$36 for every barrel of crude produced in the country,” Ms Belova said.
“Russian operators further benefit from the rapid devaluation of the Ruble as oil prices decline. The country’s currency closely follows global oil prices. The current exchange rate to the US dollar also represents an 18-year low and this allows for costs in Russia to be significantly reduced when expressed in dollar terms.
“Since all oil services, contracts and labour costs are paid in Russian Rubles, the devaluation effectively represents a reduction in costs by 24% from the year peak. This enables Russian operators to bring combined capital and operating costs to well below US$10 per barrel, keeping them competitive throughout the Saudi-initiated price war and the coronavirus-induced global demand decline.”
