Russia and Crude Oil

Oil pricing did not escape the complexity of the world economic system. In addition to supply and demand, there is the speculation, policies (country dependent from taxation to limitation on imports or exports), geo-political pressure, seasonality, weather and the tweets of the orange monster. The latter can move “the strongest economy in the world ever” by 2% up or down and move oil prices 5-8% up or down. So, good luck my friend.

Nevertheless, when finding a “solution”, in the mathematical sense, i.e. being able to say the barrel of oil is worth this much, we can try a bit less accurate method, finding boundary.  The idea is can we find a range where the oil has to be? Then maybe we can apply the above as a second perturbation.

Rather than approaching this from a classical supply/demand or the cost per barrel extraction and potential profit, I will approach this from what seems to be the reality of the world, political stability.  I.e. what do the countries who produce oil and are largely dependent on it (if not 100% dependent) have to make money wise on their oil.

In previous posts I shared some data that I found and verified, such as “http://invest.ammarica.net/2018/04/15/oil-as-of-april-16th-2018/”  Where for example from knowing the budget of Arabia and how much oil they export (“http://invest.ammarica.net/2018/04/15/the-economy-of-saudi-arabia/” you can reach almost the same number in the above article.

But with the power shifting from west to east I want to take a look at Russian oil.  This has proven to be a bit harder than finding data on Saudi Arabia.  Also, my research alerted me to the fact that when OPEC+ country talk about cuts, they are talking production cuts not export cuts. So in reality, they could cut, cut and cut but if they are exporting the same (by maybe squeezing there own people), that is not going to impact the global oil market.

So what do we know about Russia?

Let us start with oil production around the world: (https://en.wikipedia.org/wiki/List_of_countries_by_oil_production).  And if we subtract from it oil consumption from around the world (https://en.wikipedia.org/wiki/List_of_countries_by_oil_consumption) we can reach quickly to the max possible exports of these countries.  Russia has a round 8mmb/d max. And according to the EIA (https://www.eia.gov/beta/international/analysis.php?iso=RUS) and according to this resource (https://www.ceicdata.com/en/indicator/russia/crude-oil-exports), Russia exports around 5mmb/d (more or less based on the source).

What about Russian budget? It seems, and very surprisingly, that the Russian budget is about $275 billion a year, behind Spain and South Korea (https://en.wikipedia.org/wiki/List_of_countries_by_government_budget).  And Russia needs 28% of that budget to come from crude oil (https://atlas.media.mit.edu/en/profile/country/rus/).  If you do the math then we come up with $50-60 per barrel. That is the published number and assuming no money disappears here and there.  That means that Saudia Arabia will feel the pressure way before Russia does when oil prices go down.   And I believe that is what Arabia recognized while back then and wanted to make friends with Russia.  They know that they cannot put them out of business with low prices.