Russia braces for cheap oil as ruble slumps

Energy-rich Russia's currency on Friday extended its record slide and the government lowered its crucial oil price forecast in the wake of OPEC's decision to leave its output target unchanged.

After falling of more than three percent on Thursday the ruble shed another two percent and stand near the 49.60 mark in late afternoon trading on the Moscow Exchange.

It also gave up two percent and was valued at almost 61.85 against the euro -- also a historic low.

The dollar-denominated half of the Moscow Exchange was recording a three percent decline and scraping levels last seen in 2009. But its ruble counterpart was holding near year-to-date highs.

The beleaguered currency has been trying to find its footing ever since the OPEC cartel decided on Thursday evening not to cut back production to support oil prices that have fallen by a third since June.

The value of energy on international markets is critical here because Russia -- eager to limit borrowings at a time of extreme tensions with the West -- will generate a whopping 52 percent of its 2014 revenues from oil and gas sales.

But the global energy glut and corresponding price collapse has contributed to the weakening of the ruble, which has lost around a thrid of its value against the dollar since the start of the year.

Such falls are especially sensitive to Russians who saw their ruble savings wiped with the collapse of communism in the 1990s -- an era when the Kremlin's approval rating at one point dipped below five percent.

The ruble's depreciation this year has also been fed by stiff sanctions imposed by the United States and the European Union over Russia's intervention in ex-Soviet Ukraine.

"The ruble's decline will remain steady and stable," FBK Strategic Analysis Institute chief Igor Nikolayev warned.

- $60 oil -

Russia's growth is likely to flatline this year and contract in 2015 -- a malaise attributed to President Vladimir Putin's failure to improve market conditions and develop industries that could ease the budget's dependence on oil.

The 2014 state spending plan is based on an average oil price of $93 a barrel.

But Economy Minister Alexei Ulyukayev admitted on Friday that the 2015 draft will have to be revised to account for the lower Brent crude price that stood at $72.65 on Friday afternoon.

"There is a strong probability that it will be closer to $80 a barrel," Ulyukayev told reporters.

"This situation once against confirms our position that Russia's budget policies must be adapted to new oil prices," Maxim Oreshkin of the finance ministry's strategic planning department added.

Russia's most powerful oil executives were also entering the winter holiday season in a sour mood.

The head of state crude giant Rosneft cautioned that prices may even approach levels last seen during the 2008-2009 global financial crisis -- a 12-month span that saw Russia's growth shrink by nearly 10 percent and the banking sector require billions of dollars in assistance.

Lukoil private oil firm vice president Leonid Fedun said the joint effect of falling prices and Western sanctions will probably see Russia's oil production drop from its current peak of about 525 million tonnes to 490 million tonnes within five years.

"The second, pessimistic, scenario is playing out," Fedun told the Financial Times.

"So our forecast is oil production will decrease. But this decrease will not be dramatic, it will be more similar to what is happening in the North Sea."