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- Don't stand on the threshold: the cut-off price for replenishing the NWF may be reduced to $50 per barrel
Don't stand on the threshold: the cut-off price for replenishing the NWF may be reduced to $50 per barrel
The price of cutting off oil to replenish the National Welfare Fund may be reduced to $50 per barrel of Urals, experts interviewed by Izvestia believe. At the end of April, the Ministry of Finance stated that today's $60 per barrel is irrelevant. It took lowering the bar because global energy prices have fallen by a quarter due to trade wars since the beginning of the year, and on May 5, Brent - which is more expensive than Urals — updated another low, dropping to $59 per barrel. If the budget rule is not changed, there are risks of exhausting the National Welfare Fund too quickly and over-strengthening the ruble, experts warned.
What can cut off the price of oil
At the end of April, Finance Minister Anton Siluanov said that the price of cutting off oil to replenish the NWF at $60 per barrel, which is currently in effect, "does not meet the demands of the times." However, he did not mention the actual figure.
The cut-off price is the threshold that the authorities target when replenishing the fund. According to the budget rule, if the price of Russian Urals oil is higher, then excess profits go to the "pot" (they buy currency and gold), and if lower, assets are sold from there to support the ruble. Such a mechanism was invented to form state reserves in the "rich years", as well as to make the ruble exchange rate less dependent on the cost of oil.
In 2025, it was necessary to reduce the cut-off price because global energy prices have fallen by a quarter since the beginning of the year due to trade wars. On May 5, the price of Brent updated its four-year low, dropping to $59 per barrel. The Russian Urals grade is always even cheaper — on May 5, it was trading below $54 per barrel, according to ProFinance data.
According to the budget rule, the cut—off price should be lowered to $50 per barrel, which in the baseline scenario should be sufficient in today's market conditions, says Marina Nikishova, chief economist at Zenit Bank. Georgy Ostapkovich, Director of the Center for Economic Studies at the Higher School of Economics, named the same appropriate threshold.
During periods of low oil prices, budget expenditures are supported by spending previously accumulated reserves, so it is logical to cut off some average cost of energy resources, around which fluctuations occur during the economic cycle, Mikhail Vasiliev, chief analyst at Sovcombank, also believes. He also calls the cut-off price of Urals oil in the budget rule at $50 per barrel more appropriate than the current $60.
Vladimir Eremkin, a senior researcher at the IPEI Structural Research Laboratory of the Presidential Academy, called the bar even lower — $45 per barrel. However, he made a reservation that the oil market is in search of a new equilibrium state, so it is quite possible that in the future this value may be reduced once again.
BCS World of Investments and SberCIB Investment Research believe that it is acceptable to leave the current threshold of $60. Izvestia sent a request to the Ministry of Finance about what cut-off price the agency considers relevant now.
Why change the oil cut-off price
Additional adjustment is necessary so that the NWF is not exhausted too quickly. According to Anton Siluanov, the new parameters of the budget rule should be such that the liquid assets of the pot are sufficient for "three years of uninterrupted financing of expenditure obligations in the event of a stressful development of the situation in the oil market."
According to the Ministry of Finance, as of April 1, the liquid assets of the NWF amounted to 3.3 trillion rubles (or 1.5% of GDP projected for this year). At the same time, only in 2025, according to the updated forecast of the department, the federal budget deficit will be at the level of 3.8 trillion rubles.
If oil quotes are steadily fixed below the set cut-off price, then the NWF will have to spend funds to support the ruble exchange rate. This means that the "pot" risks running out faster, experts interviewed by Izvestia warned.
— The liquid part of the NWF has shrunk in recent years, and trade wars can lead to a prolonged decline in oil prices. Therefore, the cut—off price of $60 per barrel may not meet the criteria of sufficiency of the liquid part of the NWF to compensate for the loss of oil and gas revenues," explained Rodion Lapytov, chief economist at VTB Group.
According to his estimates, if the budget rule is adjusted and the cut-off price is lowered to $50 per barrel, then the liquid part of the NWF will last just about 2.5 years.
In addition, if the budget rule is not adjusted properly, then there are also risks of "over-strengthening" the ruble, experts explained. Currently, the national currency is below 85 rubles/$, but this level is unprofitable for the budget. As Izvestia wrote earlier, due to an excessively strong national currency, the treasury may lose 2 trillion rubles.
At the same time, only a reduction in the cut-off price will weaken the real effective exchange rate by 6% this year, that is, to about 90 rubles/$, believes Yuri Popov, senior analyst at SberCIB Investment Research.
The head of the regulator, Elvira Nabiullina, said at the last meeting of the Board of Directors of the Bank of Russia that adjusting the cut-off price would increase the stability of fiscal policy.
With the adjustment, exporters and the budget will benefit, and it will also be possible to save the resources of the National Welfare Fund, said Hovhannes Ohanisyan, director of the analytical department of Digital Broker. At the same time, the population will notice an increase in the dollar exchange rate through higher prices for imported goods and travel.
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