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World Bank does not expect sharp hike in oil prices in long term perspective

Логотип TASS TASS 02.06.2017 TASS

ST.PETERSBURG, June 2. /TASS/. World Bank does not expect a sharp hike in oil prices in the long term perspective, but the oil output cut deal between OPEC and oil producing countries outside the cartel is one short-term factors of oil price stabilization, Kristalina Georgieva, Chief Executive Officer of the World Bank, said in an interview with TASS.

"In a long-term perspective we do not expect a sharp growth in oil prices. We should accept that the prices will be more or less within the current range. Oil producers should adjust to it. Russia does it absolutely right when it introduces the budget rule again. In my opinion, it is quite clear why the price won’t grow - because oil production technology has strongly diversified. More options, new production technologies emerged. Plus alternative energy sources are developing," Georgieva said.

In December 2016, OPEC and non-OPEC oil producing countries including Russia agreed to cut production from January 1, 2017 for six months. Under that agreement Russia committed to reduce production by 300,000 barrels per day. At the meeting in Vienna on May 25, all the parties to the deal agreed to extend it for another nine months - until the end of March 2018.

The fiscal or "budget" rule is the mechanism of formation of Russia’s budget. It determines the maximum level of spending on the basis of oil prices. The aim of the rule is to make the budget less dependent on market revenues. The essence of the rule is that additional revenues that are raised from sale of oil and gas should be transferred to the Reserve Fund.

Such additional revenues emerge in case when the actual price of oil exceeds the price in the forecast.

After a sharp decline in oil prices the fiscal rule did not work and the government decided to suspend its application. But in November 2016, Russia’s Prime Minister Dmitry Medvedev said he finds it reasonable and necessary to form the new budget rule.

ITAR-TASS

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