Government to Cut Its Oil Price Forecast

The government is to cut the price it expects Russian oil to fetch on world markets and this will slow the appreciation of the ruble, top officials said Monday.

Deputy Finance Minister Tatyana Golikova told the Federation Council that the ministry would revise the average oil price forecast in its long-term plan to $55 from $61 per barrel in 2007 and to $53 from $56 in 2008.

"Our current estimates show that the forecast included in the long-term financial plan should be revised downward," Golikova said.

Russia's mainstay Urals crude oil traded at about $53 per barrel Monday, down from more than $60 in December. The Economic Development and Trade Ministry said gross domestic product would grow by 6.1 percent in 2007 with oil at $55 per barrel.

The lower oil price will slow the real effective appreciation of the ruble as well as gold and forex reserves and money supply growth, Central Bank First Deputy Chairman Alexei Ulyukayev said.

"The historically long period of the national currency's appreciation is coming to an end. We see the end to this period this year or next," said Ulyukayev, who spoke in the Federation Council shortly after Golikova.

"The ruble will strengthen less this year than in 2006," Ulyukayev said. The ruble appreciated by 7.4 percent in 2006 in real effective terms, which takes into account nominal exchange rates and inflation levels in Russia and its trading partners.

Ulyukayev said the growth of the country's $309.5 billion gold and foreign exchange reserves would slow as well. Money supply grew by 49 percent in 2006, flooding the economy with cash it could not digest.

The long-term financial plan serves as a basis for the budget, which saw a 28 percent hike in spending in 2007.

Golikova said the ministry had no plans to change its oil price forecast for 2009 to 2010, currently at $52 and $50 per barrel, respectively.

About half of Russia's budget revenues come from oil and gas exports. Last year, high oil prices kept the budget surplus at above 7 percent of GDP. Lower oil prices mean less money will be flowing into the $89 billion stabilization fund, which collects oil taxes from a price above $27 per barrel and will not immediately affect the budget.

The Finance Ministry proposed last month creating what would be called the Oil and Gas Fund to gather all oil and gas revenues accruing to the budget and replace the existing budget stabilization fund.

The new fund would finance the budget deficit, net of oil and gas revenues, but the size of such transfers would be limited at 2.9 percent to 3.6 percent of the GDP.

The scheme is designed to help the Finance Ministry rein in populist attempts to increase social spending but is opposed by many in the government who want to spend windfall revenues on roads and other infrastructure projects.