Russia warns crude could soar to $150

[LRE]

Reuters
Published: June 05, 2009, 23:43


St Petersburg: Russia on Friday warned that oil could soar to $150 (Dh550.8) a barrel if the global economic crisis continued to curb investment in capacity by top producers.

Moscow's top energy policy official also warned output from Russia could be hit unless borrowing costs fell for its energy giants and called for a move away from trading oil only in US dollars.

Russia, which is currently producing more oil than Saudi Arabia, has refused to cut production with the Organisation of Petroleum Exporting Countries and wants higher prices for the lifeblood of its $1.7 trillion economy.

"If capital investments do not recover then the recent forecast of the Saudi oil minister, when he said in Rome that oil prices could be $150 (per barrel) in two to three years, could become [a] reality," Deputy Prime Minister Igor Sechin said.

"I can tell what we think is needed for us - we need not less than $75," said Sechin, one of Prime Minister Vladimir Putin's most trusted advisers.

Russia had enjoyed the longest economic boom in a generation during the presidency of Putin in 2000 to 2008 on the back of high oil prices.

However, Putin's successor and the Kremlin's new chief Dmitry Medvedev says the habit must be kicked and that the severity of Russia's economic crisis has shown the fragility of reliance on oil and gas exports.

The economic crisis hammered confidence in Russian corporate borrowers - who owe $400 billion to foreign lenders - and some major Russian companies have said they are finding it too expensive to borrow in Western markets.

"A reduction in access to the financial markets could lead to a reduction of output," Sechin said, but added Russian production forecasts were stable due to investment made over previous years.

Sechin, who is considered one of Russia's most powerful officials, called for oil markets to find a way to insulate themselves from the decline of the US dollar, which has led to a rise in the nominal US dollar price for oil.

"We need to protect the oil market from risks on the currencies market," Sechin said.

"As far as a peg to one currency is concerned there are no simple answers that could replace the existing system tomorrow or a day after tomorrow," he said.

"But without work in this direction oil markets could become hostage of decisions of the government of one country."

Sechin, 48, is the informal leader of a group of officials whose aim is to restore some of the former Soviet Union's clout by using Russia's vast energy resources.

However, the economic crisis has forced most Russian energy companies to cut investment as they find it more expensive to borrow abroad. And extraction is becoming more costly.

Russian oil output fell by about one per cent in 2008 to 488 million tonnes (about 9.8 million barrels per day), the first decline in a decade, as the easily extractible deposits of Western Siberia, which have been exploited since the 1960s, started to decline.

Russian officials say future gains in oil output will now have to be made in the more distant parts of Siberia and the Arctic, which will need hundreds of billions of dollars in investment to bring oil to market.

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