Forbes: "It Seems Russia Is Incapable Of Substantially Increasing (Oil & Gas) Production"

[hatrack]

EDIT

One negative trend of 2007 is the steady rise in prices of consumer goods and food, a very dangerous development. The consumer price index surged 12%, but the price of certain foods has risen at a much faster pace--vegetable oil increasing by 150%, butter by 40%, milk by 30%, and grains and bread by 25%. This is not the result of a worldwide increase in food prices--Russian food prices are growing faster than world prices, even faster than in neighboring emerging market economies like China and India.

The rise in consumer prices is a result of increases in salaries, pensions, stipends and other social spending at a pace much higher than what economic growth allowed. This puts more rubles in the hands of Russians, but decreases the purchasing power of the currency. During the last 11 months of 2007, the ruble supply increased by 30%. As a result, taking into consideration the high speed with which money circulates in Russia, the purchasing power of the ruble fell by 20% to 25%, according to my calculations.

Indeed, the increase of rubles in circulation has grown four times faster than the growth rate of the national economy. This trend also resulted in an increase in gas prices. The government implemented many limitations to slow the consumer cost compared with the cost of production. This means that this compressed "price spring" will expand in 2008, resulting in a sharp increase in gas prices for consumers, as well as prices of first necessity goods. Which takes us to another key trend of 2007 that is likely to continue in 2008--a steady increase in oil prices, with an impact felt across the Russian economy. Certainly the increased world price of crude brought a steady inflow of foreign currency to Russia, as oil accounts for 34.5% of Russian exports. Natural gas accounts for 12% of Russian exports, although this number is declining slightly.

Despite growing prices for natural resources and raw materials, Russia's positive trade balance has shrunk, because imports are increasing faster than exports--which may be a dangerous trend, and likely to continue in this year. It seems that Russia is incapable of substantially increasing the production, and consequently, the volume, of exports of natural resources. The solution to the shortage is the rising price of oil and gas.

EDIT

http://www.forbes.com/2008/01/08/russia-economy-projections-oped-cx_vkv_0108russia.html?partner=msn

[cutlassmama]

1. Aren't the Russians selling their oil/gas to Chavez/Venezuala since

he's running low?

[Zachstar]

2. Does anyone have any extra oil left?

It seems the USA is the only landmass on earth yet to go full power on oil production.

President Bush needs to make the call to completely open the reserve. It will perhaps give us another year to get as many alternatives in place before things get bad.