03/11 11:20 EMERGING MARKETS-Oil price rise may help Russia
By Brian Spoors
LONDON, March 11 (Reuters) - Cash-strapped Russia could be one of the main emerging market beneficiaries of a nascent rise in world oil prices, economists said on Thursday.
But how just helpful depends on the rise being sustained.
"Each dollar increase in the oil price gives Russia extra oil revenues of between $1-1/2 billion and $2 billion, if you also take into account the likely increase in the price of natural gas," said Jonathan Hoffman, sovereign analyst at Fitch IBCA.
But he added the dollar-starved economy would also be seeking positive results from premier Yevgeny Primakov's upcoming visit to Washington, and from a breakthrough in talks with the International Monetary Fund (IMF)
"The oil price is welcome to Russia but by itself is not sufficient to attract back investors," he added.
Crude prices firmed some $2 this month to around $12.50 a barrel, having sunk to a 25-year low in real terms at $9.55 last December in a market glutted by overproduction.
The price of benchmark crude oil Brent blend averaged around $13.30 in 1998 and around $19 per barrel the previous year.
"Obviously it is very beneficial for the oil exporters, primarily Russia, Venezuela and Ecuador," said Jerome Booth, head of research at Ashmore Investment Management.
"It has a generalised impact on other commodity prices and it will also help some of the other Andean countries, like Chile and Peru a little bit," he added. After two years of abnormally low prices it could be some time before oil prices have reached levels at which they will seriously damage oil importers, economists said.
"Importers have benefitted from lower oil prices, which has helped them reduced inflation," said Isobel Knight, who manages an east European investment fund at Credit Suisse Asset Management.
"It might not be serious from this level, but the point is how fast it gets to $18 -- if it gets there. In 1997 they spent a whole year paying over $18 a barrel, so they have to re-adjust for it," she added.
That would largely depend on the outcome of the March 23 ministerial meeting of the Organisation of Oil Exporting Countries (OPEC) at which the major producers are advocating a cut in production of 2.3 million barrels for the cartel members and non-OPEC oil exports.
The plan emerged from a meeting of the Gulf Cooperation Council ministers held in Saudi Arabia on Wednesday and was the likely subject of a key producer summit being held in the Netherlands on Thursday.
The higher crude price lifted Russian oil company shares and drove major indices to their highest so far this year.
Oil major LUKoil <LKOH.RTS>, and Surgutneftegas <SNGS.RTS>, led the way as shares in both companies reached their highest mark of the year.
Traders cited the oil price, Wednesday's strong performance on Wall Street and optimism over talks between the IMF and Russia as being behind the rise.
"(The higher oil price) is one of the most important issues in terms of the medium term viability of what is going on in Russia," said Booth, adding that hydrocarbons was Russia's major export earning area and key to boosting trade surpluses.
"One can argue that after the Asian crisis the only real fundamental problem Russia had, in addition to what was the case before, was the oil price. That was the only argument for any devaluation," he said.
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