Mixed oil news from Russia, Kudrin predicts oil price correction

Crude oil prices may start falling as soon as December as the US government will drain liquidity from the financial market, Russian Finance Minister Alexei Kudrin warned Thursday. The prices shot from a low of $40 per barrel in December to about $70 now because the United States, like other governments around the world, flooded its economy with money to fight the recession, he said. This prompted speculators to invest more in commodities.

“It caused the prices to overheat,” he said during a discussion of next year’s federal budget in the Federation Council. “In three to six months, when the Federal Reserve begins to remove liquidity from the market … we will have a correction.” Prices will slide to between $57 and $60 per barrel and stay at that level for the next three years, the minister predicted. They will further inch down to an inflation-adjusted $50 per barrel in 2013, he said.

The government is basing its budgets for the next two years on oil prices of $58 and $59, respectively, for Urals crude, Russia’s main export blend. Urals stood at just over $70 per barrel in spot trading Thursday.

In mentioning the coming contraction of the US money supply, Kudrin also appeared to refer to a speech that US Treasury Secretary Timothy Geithner delivered last week to the Congressional panel overseeing the $700 billion Troubled Asset Relief Program.

Gazprom chief Alexei Miller voiced far more optimism about the oil price, saying last week that it would hit $100 as soon as next year.

OPEC will not let prices grow that high because it could stifle a budding economic recovery, said Alexei Kokin, an oil and gas analyst at Metropol. “I’m inclined to hold to Kudrin’s estimate,” he said.

Even if demand continues to rebound next year, as the IEA projected in its forecast last week, OPEC has sufficient resources to provide for the extra consumption, Kokin said. Crude oil prices could slip from their current levels because of the reasons named by Kudrin and if demand climbs more slowly than expected, he said.

The IEA, an energy adviser to 28 developed countries, last week raised its demand forecast for next year by 1.7 percent, to 85.7 million barrels per day.

Tags:  Kudrin, oil prices, Russia, US