As a result, crude has been piling up in Russia, and the internal price has declined to the $10 level. For the barrels of Urals that have made it on to the open market, this strange situation has pushed their price higher than Brent at times, an extremely rare occurence.
But why should anyone outside Russia particularly care about this? As
Platts' Moscow bureau chief Nadia Rodova wrote recently, working with
London editor Tatiana Phillips -- who has written about the $10 barrel
-- "The recent retreat in oil prices...(has left) the companies
virtually without earnings from oil exports. The high export duty has
also been blamed for a fall in oil production in 2008 as previously
profitable exports became less lucrative. Crude
output this year has fallen every month, and both the government and the
industry concede production will fall in 2008 for the first time after
ten years of consecutive growth."
It has been pointed out by numerous analysts that the downside to the current slide in prices is the reduction in investment for the next generation of upstream projects. It's not hard to figure why a $10 price for crude might impact investment decisions.
Russia is looking at a revised tax structure beginning next year. Until then, abject failure is the only way to describe this experiment with draining the coffers of oil companies because, well, you know, they are just this big, wonderful endless stream of cash to fund the government. Yes, it's created artificially low prices at home, but it is choking investment into the country's main export industry.
While the US is not a crude exporter, the impact of these taxes on the Russian industry ought to give certain Washington politicians pause as they lick their chops looking at 2009, and wondering just how much they can extract from US companies through various taxation schemes.
