Russia’s Oil Companies Will Survive The Struggle According To Research

Russia’s economy has significantly dipped last year following the cheaper prices of oil. Its economy suffered very rough quarters and after sanctions made by different nations worldwide in view of its attack on Ukrainian territory, there appears to be no visible ray of light in its economic standing.

Russia’s rating

You do not have to be a market analyst to say that Russia’s economy is receding and will continue to dip down further if its sanctions will not be lifted off and if oil prices will continue to fall. Due to Russia’s bleak economic forecast, agencies have already downgraded the sovereign rating of Russia to junk status.

Fitch Ratings also downgraded Russia’s ratings to a BBB negative last month. Meanwhile, S&P downgraded its ratings for Russia to a junk status. S&P’s rating is BB+, a notch lower than previous rating.

In a test conducted by Fitch Ratings, the credit burden of companies in Russia remains to be in an acceptable level even if there will be no improvement in oil prices. It is surprising that Russia’s oil and petroleum companies are keeping up with the bearish market sentiments.

Major contributing factors why Russian companies are still coping

Fitch ratings concluded in their study that there are three major factors why companies in Russia especially oil companies will still fair well despite the economy tumbling down. First to consider is the progressive tax system employed by Russia. The tax rate paid by Russian oil producing companies, decreases as the value of oil falls.

The second reason is Russia’s flexible exchange rate. In response to the dipping prices of oil, the ruble also falls. This in effect cushions the impact of dwindling revenues in exports.

The third reason is the regulation of the prices of domestic gases. The gases are priced in ruble and fall in terms of dollar much slower than prices of oil. This trend happens only so long as the depreciation in ruble will not exceed the lowered prices of oil.

The global condition

According to analysts, the current global correction of oil prices is inevitable. Every nation was not spared from the effects of this including Russia. Russian oil companies are pressured to make sure that they survive this blow and this could be made possible by building stronger corporate structures.