Economy faces ‘catastrophe’ over drop in oil prices

Vladimir Putin, Russia’s president has said the country’s economy, already battered by sanctions and a collapsing currency, faces a potential “catastrophe” over slump in oil prices.

Crude prices have fallen by almost a third this year, undercutting the economy in Russia, the world’s largest energy exporter. Even the central bank’s forecast of zero growth next year may be in danger as the International Energy Agency forecasts a deepening rout in oil prices as the market enters a period of weaker demand.

Brent crude, the grade traders look at for pricing Russia’s Urals main export blend, has collapsed into a bear market as leading members of the Organization of Petroleum Exporting Countries resisted calls to cut production and US output climbed to the highest level in three decades because of the shale boom.

Brent is heading for its eighth weekly decline after sliding below $80 for the first time in four years.

Oil consumption will slide by about 1 percent to 92.6 million barrels a day in the first quarter from the current three-month period, the IEA said in a monthly market report today.

Declining export revenue from oil and natural gas and the central bank’s attempts to shore up the ruble are threatening to exhaust public finances. The non-oil deficit exceeds 10 percent of economic output at a time when the central bank’s defense of the ruble has cut reserves by a fifth from last year’s peak. Still, the currency’s slide helps compensate to an extent as foreign-currency is converted into a larger amount of rubles for the budget.

With $421 billion in international reserves, Russia has a “big enough” buffer to meet all social commitments and maintain budgetary and economy stability, Putin said.