Will it make sense to buy wads of Rubles soon?

[Misha]

IIRC, the resident oil man jb stated that the price of producing a barrel of oil was around 2 to 3 bucks..  I believe him.

Depends which oil of course. However, the most expensive oil to produce is oil from the oil sands in Canada and the production cost for that oil is $50 a barrel. The cheapest oil to produce would be in Saudi Arabia.

[Mishenka]

IIRC, the resident oil man jb stated that the price of producing a barrel of oil was around 2 to 3 bucks..  I believe him.

um,, BC thats not possible in 2009. Maybe back in the 1950's but not so today. as you read my previous post you will see.

mishenka

[Misha]

um,, BC thats not possible in 2009. Maybe back in the 1950's but not so today. as you read my previous post you will see.

mishenka

You are confusing two variables: the cost of producing oil versus the amount of money a state needs from the sale of oil to avoid falling into a deficit.

[chivo]

I was under the impression that the $70/bbl figure was the basis for next year's budget.  Are you sure that the cost of production and delivery amounts to $70/bbl.  The Siberian fields are expensive to operate, yet $70 is a helluvalot of money.

This is correct about the budget. The budget was set at $70 for year 2009 with a 4-6% growth prediction under that format. That has been changed since last reported. Can't remember exactly the number. I want to say $50. I think most of us have been duped on the cost of producing oil, even though it is getting more expensive.

If anyone can remember back a few years ago, Russia was pulling in nice returns and the price of a barrel was less than $30.

That the ruble is falling in value is no surprise to anyone in Russia. Most of what I've heard is that the Ruble will settle between 35-40 this year. Time will tell. Show me someone who thinks they can predict currency, and I'll show you a fool. Might be the toughest thing to predict.

The thing that most know for sure is that the Ruble has to be allowed to float and adjust to whatever the market is. This is the key to avoiding contraction and allowing for even the minimalest amount of growth. If not, then you might see all hell break lose.

I wouldn't compare this to what has happened in the past, '98 in particular. Some lessons have been learned, but yes, we're still seeing a lot of the same mentality being use, like profits being moved out of the country and any debt getting about as much attention as a broken down lada.

Prices are coming down with respect to just about anything this side of food. Russia will survive me thinks, and by summer most of the damage will have taken place. Then we'll see.

chivo

[Mishenka]

Deutsche Bank: Oil Will Stay Cheap Well into 2009

Friday, January 9, 2009 12:06 PM

Oil prices could fall to as low as $40 a barrel next year as more efficient refining capacity comes online and production costs for some regions fall, Deutsche Bank said in a Wednesday research note. (As we know it fell to $35 since this was written a week ago)


"The most underappreciated issue is the combination of poor demand with major new refining capacity additions and the extent to which that will undermine light sweet crude prices," the bank said in the note outlining the downside risk to its 2009 oil forecast.


"We believe that cash production cost 'floors' for the oil price are shrinking target (lower costs, stronger U.S. dollar), which imply a 'V' shaped downside to $40 a barrel crude around April 2009."

Oil prices have tumbled from a record over $147 a barrel to below $54 a barrel on Wednesday as demand from large consumer nations across the globe wilts due to the economic crisis.
The bank said the new refining capacity additions will use 20 percent less crude to make gasoline and distillate than older capacity, cutting the need for crude and pressuring prices.
In addition, the research note said healthy supply increases from non-OPEC sources should also weigh on oil.

"Given the weak demand we see versus relatively healthy supply levels, we seek the cash break-even cost of marginal production as the floor for oil prices," Deutsche Bank analyst Paul Sankey wrote, adding this floor was a "shrinking target".

"As oil falls, costs fall, the U.S. dollar strengthens, further causing local (Canadian, Russian) break-evens to fall."
OPEC members, feeling the squeeze of falling oil prices, will also face increased pressure not to cut production due to shrinking revenues, the bank said.

© 2009 Reuters. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters.

[Mishenka]

http://www.kommersant.com/page.asp?id=1072245

This may help as it is more accurate coming from the horses mouth. This puts the break even point with no profit at USD $60 per barrrel plus export duty taxes. Remember there are export duty taxes to pay plus the cost to get it from the ground and deliver it. When you read through all the costs involved you arrive at a break even point of $70 per barrel.

Nov. 18, 2008

Home Oilmen Given the Break-Even Chance
Russia’s oilmen have finally won from the government the reduction in period of oil price monitoring to calculate the oil export duty. As a result, the duty will be $192.1 per a ton from December 1 and that rate will enable the companies to generate profit if a barrel of oil costs roughly $50 and the production prime cost equals $10. The tricky point is that the bureaucrats haven’t changed the price formula and the drop in prices will immediately make export non-remunerative.
The duty on oil export, for which calculation the government has applied new methods, will stand at $192.1 per a ton from December 1, 2008; light petroleum will have the duty of $141.8 per a ton and the duty on dark petroleum export will be $76.4 per a ton, Deputy Finance Minister Alexander Sakovich announced yesterday.

Previously, the government used to calculate the oil duty based on the two-month price monitoring. But in the environment of ailing oil prices, this practice made the export non-remunerative and shed it by 25 percent.

As a way out, the government announced the shift to the monthly monitoring from December 1. According to Finance Ministry, the companies will save roughly 50 billion ruble from it (the duty would equal $306 per a ton in December under the old methods of calculation).

Given the severance tax, the oilmen will pay to the government $36 per each exported barrel, not counting the profit tax of 5 percent. Shipping oil to the ports will cost another $7 per a barrel.

With the average prime cost of production at roughly $10 per a barrel, the companies have a chance to profit in December, provided the price doesn’t sink deeper. “The curtailed duty will enable the companies to play back a portion of decline,” said Assoneft chief Elena Korzun, specifying that domestic price of 6,400 ruble per a ton enables producers to generate profit. “The main thing hasn’t been done. Domestic price for oil is still tied to the world price.”
www.kommersant.com

Mishenka

[Makkin]

 I track most exchange rates on a multiple daily basis and feel now is almost the right time to buy the Russian money but only if the gas situation does not go on for a long time. If you buy now at 32.45 or so per dollar and the gas situation is fixed then the Russian money will correct itself in a short time period. If the gas line situation lingers you may see the Russian money at 40 per dollar because "pay back" and "manipulation" will be in effect. Buy now at 32 and your probably safe in variable degrees.

 Makkin

[Mishenka]

After reading the previous posts from Kommersant and OPEC news, I'm thinking the oil market and the world economy is much to fragile to be buying any currency other than USD right now.  People living outside USA are hording US dollars. Do what they do and you will be safe. I hear sales of personal home safes are up by 3000 % in USA since the bank failures. Makes sense that people are keeping their cash safe at home. I hated the feeling I got when I arrived at my bank a month ago to find it shut down by the Fed.

As I posted before, IF the current oil prices at $35 cause the Middle East to become fragile and run a deficit, the same will be true for Russia.  If the Middle east is not immune to collapse, the same is true of Russia.  Oil and gas revenues are all they have. They are what drive the price of the ruble in Russia, They are tied directly together in a marriage that can't be separated. Without Oil and gas revenues, Russia would never have been lifted out of the collapse of the FSU. Until there is a need for more consumption and thus production, oil prices will stay low. The Ruble will stay low. With 10.6 million people out of work in USA, they are not driving or using gas. Now multiply this and add to the millions out of work all over the world and you have billions of barrels of oil that is not needed or sold each week, month, year. The loss in revenues are staggering. When it cost the country $XXXX billion to stay alive and they are taking in $XXXX less than they spend, they will eventually collapse. I guess the easy way to understand it is, in USA we lost values in homes causing banks to collapse.  In Russia the value of oil went to historic lows causing their ruble to devalue and use up the country reserves. What do they do? Print more rubles. How? buy buying them with US dollars!! What is the result? The US dollar goes up!

Hurray!
Mishenka

[Faux Pas]

IIRC, the resident oil man jb stated that the price of producing a barrel of oil was around 2 to 3 bucks..  I believe him.

This is still pretty much true. The raw costs of extracting it from the ground is not very expensive when compared to the barrel. Oil is a commodity and the price of oil will always be based on supply/demand. It is more a matter of who owns it, what they are willing to sell it for and how much is market available.

[GoodOlBoy]

AP just reported that ALL Circuit City Stores are closing and their stock is pretty much worthless. 


 http://www.google.com/hostednews/ap/article/ALeqM5irmWZmMlki7isG4T9NmoHzSlAMJwD95OH79G0



GOB

[Makkin]

Mishenka,

  You are very on top of what matters and thus you see the effects and maybe the cause.


   To attempt to see what the Ruble will do is a mystery but one of sorts that is simple and complex. The result of that economy will probably be seen shortly in multiple effects that are mind-bending. "May God help those good people".



   Investment is simple but for simple persons it appears complex. Simple seems to work best today.

Makkin

[Mishenka]

AP just reported that ALL Circuit City Stores are closing and their stock is pretty much worthless. 


 http://www.google.com/hostednews/ap/article/ALeqM5irmWZmMlki7isG4T9NmoHzSlAMJwD95OH79G0



GOB

GOB, it is projected that 170,000 stores will close in USA during 2009. Make sure you dont own stock in any of them.  google store closings and get the long list. 

After speaking with Manager at Bank of America today, she is telling me even with the $45 Billion bailout money the Fed gave them, it will only cover losses of Meryl Lynch and Countrywide, who they took over this last year.  There will be no new money for loans with them. They paid little to buy these failed banks but, they had to make good on money investors lost in the process. thus the 45 Billion in bad paper had to be dealt with.

Mishenka

[Mishenka]

Mishenka,

  You are very on top of what matters and thus you see the effects and maybe the cause.


   To attempt to see what the Ruble will do is a mystery but one of sorts that is simple and complex. The result of that economy will probably be seen shortly in multiple effects that are mind-bending. "May God help those good people".



   Investment is simple but for simple persons it appears complex. Simple seems to work best today.

Makkin

What I see in the near future for Russia is, joining the EU and saying goodbye to the Ruble and hello to the Euro. What I see for USA is the Amero, joining with Canada, and South America with this new currency. Changing the currency is one way to wipe out the bank bailout trillions in losses. If this does not happen,  I see the real possibility of using a cashless society we all hear about where there are no more credit cards, and the new world order (US Government) along with G8  will create one world currency, tatoo an invisible ink bar sode on our right hand or forehead as the Bible predicts in the book of Revelation and there you have it. No one will be able to buy or sell without the mark- tatoo made with ink that can be seen only under blue light as California bank and trust is now using to verify ID on their clients.  I read about all of this 25 years ago but we never had a reason to belive it was a possibility until now. We have the technology to actually do it. With the world financial collapse, and fraud out of control, credit card companies not being paid on cards, banks and businesses failures not seen since the great depression. It all adds up to the reality of a one world money system and cashless society.  When? Only God knows.  In our lifetime, yes.
CNN reported tonight that over 50% of Americans say they are struggling to make it. They are in trouble.
Mishenka

[Mir]

Russia will nor join EU in our lifetimes

Rubble will keep depreciating for at least another year, in fact most of the depreciation is yet to come.

[Mishenka]

Russia will nor join EU in our lifetimes

Rubble will keep depreciating for at least another year, in fact most of the depreciation is yet to come.

Mir what is your age? Some of the younger guys may think differently. Just kidding.  Seriously, if you listen closely to the moanings and grownings of the world during this financial crisis, you will hear a lot of talk about a one world currency, cashless society, invisible ink tatoo's with bar coding or a chip implant that one must use to buy or sell to live. This is for every person on the planet who is listed in the computers in Brussels which by the way, is nicknamed "The Beast". To say Russian will never join the EU  in our lifetime, well, lets just say annything can happen when the financial world has collapsed. It's not totally out of the forecast.  severe stormy weather is yet to come.

I agree Rubles are headed for a repeat of the 90's' when they hit 6000 to one USD.  Do you suppose the Kremlin will create another new ruble and remove all the Zeros?  The only way they can legally print more money is to buy USD ot Euro with cash reserves. When the cash reserves are depleated in a few months, what then? Sell off military weapons?  Who has cash to buy?? No one. Not eve Iran and other allies.  This is going to be interesting to sort out the mess.

[Mir]

Misha

I agree that anything can happen and we might well see Iran, Syria and Libya becoming full fledged members of NATO and joining EU soon but the chances of such events are slight.
For as many people who are moaning and groaning for one world for all there are others who blame the increased globalization as the cause of the current financial crisis.
I am sure for people in US the EU looks to be the panacea to the world ills, for us in UK who are a bit nearer to the EU is is not so rosy. The real impact of the financial crisis has yet to hit the EU. At the moment USA and UK are getting screwed but soon the financial disaster will really hit the EU. Four of the EU members:Ireland, Spain, Greece and Italy are bankrupt, the way the crisis should be managed is going to create serious divisions within the EU and I will not be surprised if the very existence of EU comes under threat.
Anyway that is just my HO.

[Mishenka]

Misha

I agree that anything can happen and we might well see Iran, Syria and Libya becoming full fledged members of NATO and joining EU soon but the chances of such events are slight.
For as many people who are moaning and groaning for one world for all there are others who blame the increased globalization as the cause of the current financial crisis.
I am sure for people in US the EU looks to be the panacea to the world ills, for us in UK who are a bit nearer to the EU is is not so rosy. The real impact of the financial crisis has yet to hit the EU. At the moment USA and UK are getting screwed but soon the financial disaster will really hit the EU. Four of the EU members:Ireland, Spain, Greece and Italy are bankrupt, the way the crisis should be managed is going to create serious divisions within the EU and I will not be surprised if the very existence of EU comes under threat.
Anyway that is just my HO.

Mir, you are very observant about the EU.  At some point there will be countries that will drop out of the EU where it has a total of 10. I'm not sure how or when this will happen. I've read that Italy could "fall away" The EU will go through many changes as it grows, but I think it's here to stay.  As far as Iran goes, I would love to see these people set free from this dictator. I have a few Persian friends who tell me Iran country could be a beautiful place under the right leadership. A huge percentage of their population does not agree with its leader.

Mishenka

[SMS60]

Wow, The ruble went over 36 for the dollar today. Around 46 for the Euro

[TwoBitBandit]

The rouble is also being propped up by the Russian government, which has recently spent a significant fraction of its foreign reserves doing so.

The true "market price" of the rouble is probably even lower.

Having failed to liberalize its economy, Russia is a one-horse show of energy exports.  They need fifty dollars or more a barrel to balance their budget.

IMHO, the rouble is going to be in for a rough ride for the foreseeable future.

[Gator]

Having failed to liberalize its economy, Russia is a one-horse show of energy exports.  They need fifty dollars or more a barrel to balance their budget.

I know little about Russian metals industry, and seemingly it should have played more important role in the country's economy.  Like with oil, I assume the business is more about extraction rather than adding value.

To understand the prospects for Russia, one only need to look at South American countries with a nondiversified economy and "democratic" dictatorships.  Russia, fortunately has a lot of oil and the world needs it, except during a global recession.

[TwoBitBandit]

I read an article once about the "resource curse" of poor countries rich in natural resources.  Invariably, the upper crust of the political class gets control of the resources, and uses it to essentially "buy votes" from the unwashed masses in the form of popular but economically backwards policies and subsidies.  Meanwhile, taxes remain low because the state has non-tax form of income, so the masses don't feel compelled to rise up and revolt as they might in a state with usurious taxes.

Since everyone is momentarily cozy in this situation, nobody has a motivation to go through the painful reforms necessary to liberalize their economies.  The thing that has worked against them in the last fifty years is the continually falling price of commodities.  This is why so many of these countries are now having a worse time of it than in the past.

And so it is in Russia, it seems.  There hasn't been any movement toward a true market-based economy because of the combined effect of entrenched corruption and the above "resource richness" delimma.

To make it worse, much oil is becoming progressively more difficult to get.  This is especially true for countries that aren't using modern technology.  Russia's oil output already peaked about three years ago and has been falling slightly every year.

The good news is that all of this ensures that Russia greatest resources, attractive women with sexy accents, will be motivated to leave their motherland for the foreseeable future.