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Monday, February 23, 2015

Russian flux, strong dollar, oversupply sinks oil

by  Kostis Geropoulos On February 23, oil prices fell as worries about oversupply and a strong dollar pushed Brent futures to around $58.50 a barrel and US contracts below $49 a barrel. Following a short spike in oil in recent weeks, crude is expected to get cheaper in the days ahead, Barclays Capital said in a report released on February 23. London’s Seven Investment Management Director Justin Urquhart Stewart told New Europe on February 23 that oil price spike was very short-lived because there is very little to sustain it. “People were saying there was a bull market in the oil price. But if that’s a bull it hasn’t got any horns on it,” he said. Any boost from Greece’s last-minute deal with its creditors was overshadowed by Moody’s downgrade of Russia to junk. Russia’s Finance Minister Anton Siluanov criticised on February 21 the credit downgrade from ratings agency Moody’s as pessimistic and out of step with developments in the oil-laden economy. “I suspect that in making this decision to lower the rating the agency was guided by political factors above all,” Siluanov said. “I believe that Moody’s rating is not just overly negative, but also based on an extremely pessimistic forecast, unparalleled these days.” But Urquhart Stewart said Russia deserves the downgrading. “With the currency, with the economy getting into a worse state and it will actually be some time before that actually starts picking up again,” he said. Moody’s downgraded Russia’s sovereign debt rating to junk status. Moody’s said the security situation in Ukraine and the weak market for crude oil was diminishing Russia’s economic strength. “The risk is rising, although still very low, that the international response to the military conflict in Ukraine triggers a decision by the Russian authorities that directly or indirectly undermines timely payments on external debt service,” the rating agency stated. The Kremlin has warned the economy was entering a period of prolonged retraction because of the dual strains of sanctions and weak crude oil markets. Based on a full-year estimate of oil priced at $50 per barrel, the Russian government said gross domestic product (GDP) is expected to contract by 3% amid persistently strong geopolitical risks. Urquhart Stewart said it’s inevitable that the low oil price will put an even bigger pressure on the Russian economy. “Putin is in very significant difficulties indeed,” he said, adding that Russian companies like oil major Rosneft are asking for further state support and the government is actually running out of it. Oil prices more than halved between June and January, with Brent front-month futures reaching a low of $45.19 a barrel on January 13 but since then prices have picked up. Brent futures jumped to $63 a barrel last week in reaction to a slowing of US drilling. Last year’s fall in oil prices was sparked in part by a market bogged down by supplies, largely from a US production boom.  See also: Russia bets on oil price recovery


READ THE ORIGINAL POST AT www.neurope.eu