/ world today news/ Russia’s oil and gas revenues continued to grow at the beginning of the year. The additional money that appeared allowed the replenishment of the country’s reserves to resume. However, the situation has become ambiguous and the risks of a decline in income in the country have not disappeared. Why is Russia’s income growing and what can prevent it?
The Ministry of Finance reported an increase in budget revenues at the beginning of the year. They estimated that in February the federal budget could receive 195.4 billion rubles of additional revenue from oil and gas. Against the background of these expectations, the Ministry of Finance plans to allocate 73.2 billion rubles for the purchase of foreign currency / gold under the budget rule from February 7 to March 6, the daily transaction volume will be the equivalent of 3.7 billion rubles.
In January, revenues in the oil and gas budget have already increased 1.6 times in annual terms to 675.2 billion rubles compared to 425.5 billion rubles in January 2023. At the same time, tax revenues in January decreased to 675 ,2 billion rubles against 970 billion rubles in December 2023, although last year the budget received almost twice as much revenue from taxes on the production and export of oil and gas condensate (MET, export duty and tax on added income from hydrocarbon extraction ) – 770.8 billion rubles (compared to 2022).
“The growth in oil and gas revenues of the Russian budget in January 2024 is largely explained by the low base of last year. The price of a barrel of oil last month averaged just over 6,000 rubles, while in January of last year it was 32% lower than this value,” explains Vladimir Evstifeev, head of the analytical department of Zenit Bank.
In the first quarter of last year, the revenues in the budget decreased sharply. This was a logical reaction to the drop in oil prices and, of course, to the sanctions against Russian oil and oil products. It took time to redirect raw material flows from European to Asian directions – changing logistics, forming a dedicated fleet to transport our resources, coordinating details with buyers, arranging financial and insurance details. All this affected our exports and, accordingly, the revenues in the budget in the first quarter of last year.
As for the decrease in tax revenue in January compared to December, this may be due to seasonality. “In December, the volume of insurance and personal income taxes due is traditionally higher. In addition, in December, a significant share of tax revenue is occupied by income tax due to the difference between the actual and declared profit of organizations. In January, there are fewer working days and, as a rule, business activity is significantly less than in other months,” says Evstifeev.
Another reason for the increase in oil and gas revenues in the first two months of this year is the reduction in the Russian oil discount.
“The increase in additional oil and gas revenues in February 2024 is clearly due to the narrowing discount in the price of Urals to the main grades. At the moment, the discount of “Urals” compared to “Brent” is about 12 dollars”, explains Nikolai Dudchenko, analyst.
Nataliya Milchakova, a leading analyst at Freedom Finance, however, has mixed opinions about the January data on oil and gas revenues. “On the one hand, the 675.2 billion rubles of oil and gas revenues that the budget received in January this year is a successful result, which exceeds by almost 60% the volume of oil and gas revenues in the budget in January 2023 and with 4% the same figure in December 2023. But, on the other hand, the volume of revenue from oil and gas exports turned out to be below the plan by 122 billion rubles, or 38%. Declining tax revenues add to the relative downside. Therefore, we cannot talk about a sharp increase in budget revenues, rather, the revenue part of the budget is recovering slowly and insufficiently stably,” Milchakova believes.
The expert points to a drop in the price of “Brent” oil in January by almost 6%, which is probably one of the factors for the lack of budget revenues compared to the plan.
“Russian oil prices, taking into account not only Urals, but also ESPO, which is sold at practically no discount to Brent, in January, according to our estimates, were approximately 13-15% lower than in December. On average, in January, Russian oil was sold at 65-70 dollars per barrel. added to this is a planned cut in oil production and a likely reduction in Indian imports of Russian oil due to tightening sanctions. Therefore, the budget did not receive enough revenues from oil and gas,” says Milchakova.
In 2023, however, the average price of Urals oil was almost $63 per barrel (which is above the $60 price ceiling). This is lower than the price of oil in January 2024.
Based on the first months of the year, it is very difficult to say whether the Russian budget as a whole will cope with expenditures and revenues this year and what the deficit will be. The first trimester may not always be indicative. Last year in the first quarter there was a terrible budget deficit. But then the situation stabilized so much that at the end of 2023 the federal budget was filled with a deficit of 1.9% of GDP, while the plan was 2% of GDP.
“The budget for 2024 sets a price in rubles per barrel of oil of 6.4 thousand rubles, which is 16% higher than in 2023. With falling oil prices and a medium-term deviation in the price of a barrel in ruble, the budget deficit may exceed the planned 1.6 trillion rubles,” says Evstifeev.
In fact, the not very favorable price environment emerging on the energy market is one of the main risks for the budget at the moment, notes Nikolay Dudchenko.
“We see a number of countries actively seeking to increase production, thus matching the OPEC+ agreement to cut oil production. This leads to the fact that the price of oil is under pressure,” says the expert.
The second risk, according to him, is the increased sanctions pressure on Russia. He recalls that last year there were difficulties with the delivery of Russian Sokol oil to Indian ports. In January this year, Russian oil supplies to India decreased by 9%, but this is still not critical: Russia continues to be the largest supplier of oil to India.
Anyway, in January, Russia received windfalls from oil and gas – from the price of oil above 60 dollars per barrel, due to which the Ministry of Finance returned to buying currency to replenish the National Welfare Fund, ie. reserves. “This may weaken the ruble somewhat in February, although we do not expect a strong collapse and rise of the dollar to 100 rubles, while the requirement for exporters to sell foreign exchange profits is in force this winter,” concluded Milchakova.
Translation: V. Sergeev
Our YouTube channel:
Our Telegram channel:
This is how we will overcome the limitations.
Share on your profiles, with friends, in groups and on pages.
#Russia #fills #treasury #reserves
