Oil prices plunged following last Thursday’s OPEC meeting, during which the cartel announced that it will not cut production.
Falling energy prices have put pressure on the budgets of the world’s major oil-producting nations like Russia.
However, Russian President Vladimir Putin doesn’t seem too worried.
“Winter is coming,” he said on Friday according Bloomberg News. “I am sure the market will come into balance again in the first quarter or toward the middle of next year,”
Putin is “sanguine, suggesting falling oil won’t force him to meet Western demands that he curb his country’s interference in Ukraine,” reports Bloomberg News.
Putin’s favourable view of winter isn’t too surprising. Traditionally, the colder it gets around the world, the better it gets for the Russian economy as its trading partners import more oil and natural gas.
“It is the power of colder weather that allows Russia, as the key supplier of energy to Europe, to apply leverage. That leverage can take the form of higher prices, restricted volumes, a combination of both, or negotiations that directly or indirectly affect these additional costs,” wrote David Kotok earlier.
Russia provides one-third of the natural gas that European countries rely on both for heating their homes, and running industries. So if there’s no natural gas, that’s bad news for Europe’s economy.
One country in particular that Russia really benefits from is Ukraine. In 2013, over 50% of the total natural gas consumed by Ukraine came from Russia.
And with Ukraine’s coal mines located exactly where the ongoing Russia-Ukraine conflict is located, Ukraine will be forced to increasingly rely on Russian gas.
But even if it’s an extremely cold winter, the dropping oil prices are still ominous for Russia.
“Russia in particular seems vulnerable [to the huge drop in oil prices]. A big decline in the oil price in 1997-98 was one factor causing pressure that eventually led to Russian default in August 1998,” Allan von Mehren, the chief analyst as Danske Bank A/S in Copenhagen told Bloomberg News.
And on top of that, the country’s economy is not in an ideal situation right now.
The country is still struggling following the sanctions imposed by the US and the EU. Additionally, Russia’s non-gold international reserves have dropped to $US370 billion, down from $US457 billion in the start of the year.
And earlier today, the ruble crashed to an all-time low, down as much as 8% earlier in the day. (It has since slightly rebounded.)
You can read the full Bloomberg story here.