Futures news, oil. The cost of oil may drop to sixty dollars per barrel. Such prediction is given by the Bank of America if Greece quits EU. The process of quitting will be accompanied by the risk of deep recession that may lead to the price drop of sixty dollars/barrel. Russian ruble will have hard times in case of such outcome. At this point the Bank of Russia has already spent several million dollars during one week in order to support stability of Russian national currency.
According to the Bank of America, in 2012 the average cost of Russian oil URALS will amount to 97 dollars/barrel, which is seven dollars less than previously predicted. In 2013 the annual average of one barrel of URALS may rise to 108 dollars, which, though, is ten dollars less than previously predicted. In 2014 one barrel of the same brand of oil will averagely cost 100 dollars. In the expectation of falling economic growth, low demand and the threat of entering Eurozone in the period of recession resulted in lower cost of Russian oil, as predicted by the Bank of America.
The cost of URALS brand oil is related to the cost of North Sea oil blend BRENT, which is traded at London stock exchange. If Greece quits Eurozone, price of raw material resources will drop rapidly – BRENT will drop to sixty dollars/barrel, and oil refined in Russia will, consequently, drop.
Some time earlier Russian government claimed that drop of oil price was no threat to the budget. According to authorities, the budget for 2012 has been formed on the basis of average cost of URALS oil that amounted to 97 dollars/barrel, and “extra” oil-dollars have been directed to reserve funds. When oil price drops to current point (during 2012 one barrel of BRENT oil used to amount to over 120 dollars, having currently dropped to 97-100 dollars) reserve funds will not be refilled with oil-dollars, but the budget will also be fully implemented. It is also worth mentioning that earlier the Ministry of Economic Development and Trade has raised its forecast of average oil price from 100 to 115 dollars/barrel, as stated by the Analytics Team of NordFX.
Media is paying attention to the words of Anton Makarov, the head of Budget and Tax Committee of State Duma, who sees no threat to budget implementation even if oil price drops to sixty dollars per barrel cost. The budget will be implemented even in case such unrealistic scenario, as believed by the politician. Let us admit that, having held a stress test, international experts have stated that if oil price drops to 60 dollars/barrel, Russian economy will face “shock”, and budget deficit will reach 8 percent.
Experts have different opinions about risks of Eurozone in case of Greece quitting the monetary union, but they bear solidarity about one point – the country will refuse from common European currency in favour of former drachma, no matter whether this will happen in ordered or disordered manner. If this happens orderly, long-term consequences of such step may prove more favourable than keeping the country as a part of Eurozone and expenditures related to this. Following such scenario, Eurozone will recover in two years, during which period recession of 1-3 percent of GDP will be observed. If the process of quitting Eurozone is chaotic and disordered, Eurozone may face deep recession, amounting to 10 percent of GDP. Following such scenario, there may be a “domino effect”, when the example of Greeks will be followed by other “problematic” countries of European Union.
It is also worth mentioning that not all experts find it real for oil price to drop to 60 dollars/barrel. The most likely scenario seems to be the one when oil price drops to about 100 dollars per one barrel of BRENT oil. This is rather evident, as in addition to threats and risks related to Eurozone, the market is influenced by other factors, such as, Iranian oil embargo, possible rise of demand for oil in developing countries, threat of military conflict in oil-bearing Middle Eastern region, and others.
