President Vladimir Putin said Russia is bracing itself for a “catastrophic” slump in oil prices. as the world’s leading energy forecaster warned that the price rout had yet to run its course.
The price of oil has fallen 30 per cent since mid-June. But the International Energy Agency said on Friday that it had further to fall, with downward price pressures likely to build further in the first half of next year. “It is increasingly clear that we have begun a new chapter in the history of the oil markets,” it said.
Brent, the international benchmark, hit a four-year low of $76.76 a barrel on Friday but later bounced back to $79. However it was still down almost 5 per cent on the week.
The plunge in the oil price has spread alarm among energy producers from Saudi Arabia to Venezuela. Citi analysts have calculated that if crude remains at $80, members of the Opec producers’ cartel could see their annual revenue fall by $150bn.
Russia has been particularly hard hit. The rouble has plunged 23 per cent against the dollar in the past three months, and the central bank is forecasting zero growth for 2015.
Weak oil prices have come as Moscow struggles to cope with the effects of western sanctions. Arriving at the G20 summit in Brisbane on Friday, Mr Putin faced warnings of further penalties unless Russia pulls back from Ukraine.
“We’re considering all the scenarios, including the so-called catastrophic fall of prices for energy resources, which is entirely possible, and we admit it,” said Mr Putin, ahead of the summit. But he said that Russia’s $400bn of reserves would cushion the blow from further price slides.
Shares in some of the largest oil companies have also been hit, as investors fear tumbling oil prices could put at risk their ability to develop high-cost projects and maintain dividend payments. Royal Dutch Shell’s shares are down 7.8 per cent since mid-June, and BP’s have fallen 15 per cent.
But more broadly lower oil prices could provide a lift for western economies wrestling with weak growth. Cheaper energy amounts to a tax cut for consumers, and can also help contain inflationary pressures, ensuring that interest rates remain at low levels.
Each 10 per cent drop in the oil price adds about 0.1 per cent to gross domestic product, says Richard Batley at Lombard Street Research. But the effect may take some time to feed through. “The maximum impact occurs around four quarters after the price reaches that level,” he said.