Falling oil prices are particularly bad for Russia. A large part of the country’s GDP comes from exporting its vast supply of crude and gas.
So, it is especially surprising that a senior Russian official is predicting that oil will fall again after advancing above $50 recently.
According to the AP, the nation’s finance minister Alexei Kudrin referring to oil prices said, “This is most likely to be a temporary improvement.”
Fortunately for Russia, he may be wrong. Although OPEC did not cut production at its last meeting, it said it would enforce production cuts already in place. That should keep the supply of crude stable.
The signal from the global stock markets is that the recession may be bottoming. There are a number of reasons that the assumption may not be true, but, if it is, demand for oil could begin to rise again as early as this summer. Crude futures should begin to reflect that now.
China, which is one of the largest oil consuming nations, says that its GDP will rise 8% this year. Data on its exports would seem to undermine that notion, but the communist central government is spending over $500 billion to increase the nation’s demand for goods and services. If China’s rapid economic growth does continue, its appetite for oil could actually pick up.
Russia may do better than its finance minister thinks.
Douglas A. McIntyre
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