The CBR expects the beginning of a gradual recovery in oil prices in the first quarter of 2016

The CBR expects the beginning of a gradual recovery in oil prices in the first quarter of 2016


MOSCOW, December 11. The CBR expects the beginning of a gradual recovery in the prices of Urals oil in the first quarter of 2016, before the end of 2015 to remain near the current level, according to the report of the Bank of Russia on monetary policy of the regulator.

“Higher prices will contribute to the reduction of the sentence outside of the organization of countries – exporters of oil (OPEC) 0.3-0.6 million barrels per day on average in 2016 as a result of a reduction in investment in mining and the extraction of more than 20% in 2015”, – stated in the document.

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However, the downward pressure on oil prices will continue to support the strengthening of the US dollar and competition within OPEC. After the lifting of sanctions in the first half of 2016 the supply of crude oil from Iran may increase by the end of next year compared with the current level of 0.5 – 1.0 million barrels per day, which will exacerbate the problem of oversupply. Other countries – members of OPEC will probably maintain production at a high level, seeking to preserve and increase market share, according to the Central Bank.

“Significant uncertainty remains production from renewable sources, the sustainability of which can prevent the reduction of excess supply and restore balance on the world oil market. Moreover, due to the slowdown of economic growth and reducing energy intensity of the economy reduced the growth in demand from China, ranked second in the world in terms of oil consumption and first in his growth. Thus, risks remain in the forecast decline in oil prices,” – said the CBR.

Despite a slight increase in September and early October, the price of Urals oil decreased from $54,6 per barrel in June-August of 2015 to $45,6 per barrel in September-November of 2015. –

Three scenarios

Risky macroeconomic scenario of the Bank of Russia provides an oil price of $35 per barrel, the report said.

In the report, the Bank of Russia considers three scenarios of economic development of Russia, the main differences are assumptions regarding the dynamics of oil prices.

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“Under the baseline scenario, the price of Urals crude oil in 2016 – 2018 to stabilise at about $50 per barrel. In an optimistic scenario assumes a growth in oil prices to $75 per barrel by the end of 2017. In the risk scenario is expected to reduce oil prices to $35 per barrel in 2016 and remain low in the medium term”, – stated in the document.

Earlier, the Bank of Russia did not specify what kind of oil price risk involves the scenario, saying that it laid the price of oil below $ 40 per barrel.

Also, the Bank of Russia raised its oil prices in the optimistic macroeconomic scenario, with $70 to 75 per barrel.

In the base scenario, the Central Bank still sees oil prices at $50 per barrel, which will last a long time.

The CBR noted that the actual oil prices in the past months continued to be characterised by increased volatility, and amid continued oversupply and weak demand in the world market, their average level was somewhat lower than anticipated by the forecast.

“However, the Bank of Russia believes that there are prerequisites for the return of oil prices to $ 50 per barrel in the first half of 2016 with subsequent long-term retention at this level, and still considers this scenario as a base,” – said in the report.

At least a year to adapt

Adaptation of the Russian economy to negative external conditions will require at least one year, indicates the CBR.

“According to the Bank of Russia, for the adaptation of the economy to negative external conditions, you’ll need at least another year. During this period, should reinvigorate the reallocation of labour and capital resources in economic sectors that have potential for import substitution or products which are competitive in the external market”, – stated in the report.

The Central Bank noted that this process may be temporarily associated with additional costs of companies and correction of labor productivity after moving resources into new segments.
This, in turn, may have a restraining influence on the growth of the Russian economy and upward – at producer prices.

“However, in the medium term the result of adaptation should be the restoration of balanced growth of the Russian economy and enhancing its resilience to external shocks”, – consider in Bank of Russia.

The dollar and the fed rate

However, the dollar strengthening as a result of higher base interest rates by the fed may lead to a new decline in oil prices and other commodities, which will have an additional negative impact on economic growth in exporting countries, including in Russia, the document says.

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“Over the next two quarters likely to see a further strengthening of the US dollar amid continuing differences in phases of monetary policy the U.S. and other countries. The U.S. Federal reserve before the other moves to normalize monetary policy that promotes saving is positive (for the dollar) ratio of interest rates in the U.S. and other developed countries,” notes the Bank of Russia.

“The strengthening of the US dollar may lead to a new decline in oil prices and other commodities, which will have an additional negative impact on economic growth in exporting countries, including in Russia. However, there is a likelihood that raising rates in December, the fed can convince the market that the future path of rate increases will be smoother. In this scenario, the dollar can weaken a bit later”, – stated in the report of the CBR.

The US Federal reserve’s meeting will be held December 15-16. For the first time since 2006, the basic interest rate can be increased from the current minimum level of 0-0. 25%.

Inflation and the surplus

Inflation in Russia in 2015 will be 12.8-13%. This assessment is contained in the updated report of the regulator on monetary policy. Earlier the Central Bank predicted inflation “is closer to 13%”.

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In addition, the CBR has revised the forecast surplus in current account: in 2015 it is updated from $65 billion to 63 billion, in 2016 – with $61 billion and $ 56 billion in 2017 from $61 billion to 51 billion In the current account includes exports and imports of goods and services, net investment income and net transfers. The positive balance of current account is typical for export-oriented countries.

The forecast surplus in the trade balance adjusted for the current year from $150 billion to 147 billion, in 2016 – from $143 billion to 136 billion in 2017 from $141 billion to $ 132 billion

In addition, the Bank of Russia has lowered its forecast for GDP growth in 2018: from 2-3% to 1.5-2.5%.