Oil income records and business prosperity have become drivers of soaring Russian budget revenues

The Ministry of Finance has reported a significant increase in budget revenues during the first quarter of this year. Both non-oil and gas revenues, as well as revenues from the sale of oil and gas, are growing. Additionally, the latter has shown phenomenal growth. What is contributing to the Russian budget exceeding its planned revenue levels?
The Ministry of Finance has disclosed Russian budget revenues for the first time this year, and they appear impressive for the first quarter of 2024. The country's income increased by 50% to 8.7 trillion rubles compared to 5.7 trillion in the same period last year. Expenses have also risen, which the Ministry of Finance attributes to accelerated financing of concluded contracts and advances for individual projects.

As a result, the budget recorded a deficit of 607 billion rubles, which is almost 1.5 trillion rubles lower than the first quarter of last year.

Traditionally, revenues that go to the budget are divided into oil and gas and non-oil and gas. Both categories experienced growth in the first quarter of this year. Non-oil and gas revenues increased by 43% to 5.8 trillion rubles, mainly due to circulating taxes, including VAT. Revenues from VAT exceeded the planned level, increasing by a quarter to 3.4 trillion rubles. This sentence indicates the growth and prosperity of Russian companies, whose business turnover is increasing. This results in an increase in tax revenue for the government.
The Ministry of Finance notes that planned non-tax revenues of a one-time nature also significantly contributed to the growth of non-oil and gas revenues.

Additionally, oil and gas revenues showed even more significant growth compared to last year, increasing by 79% to 2.9 trillion rubles. The Ministry of Finance notes that the growth is primarily due to the rising prices of Russian oil and a one-time additional payment for the mineral extraction tax on oil for the fourth quarter of 2023. This payment was associated with changes in legislation regarding excise duty reimbursement on petroleum raw materials.

Revenues from the sale of hydrocarbons exceeded the department's expectations. Furthermore, the department anticipates that oil and gas revenues will exceed the budgeted amount in the coming months.

Natalya Milchakova, a leading analyst at Freedom Finance Global, highlights that income from hydrocarbon exports has increased due to the consistently high world price of Brent oil and a reduction in the Urals discount to Brent compared to the discount in the first quarter of last year.

Meanwhile, the expert highlights that the price of global Brent oil has remained relatively stable over the past year. In the first quarter of last year, the average price was $80.9, and this year it has only increased by less than one percent, reaching $81.69 per barrel.
Maintaining high world prices was crucial, and Russia achieved this in conjunction with OPEC+ actions, despite the dissatisfaction of the US and EU. The US requires cheaper oil as it directly affects gasoline prices at American gas stations. Expensive gasoline is causing ordinary Americans to become dissatisfied with the current administration of President Biden, which is dangerous in an election year. EU countries face high prices due to their heavy reliance on imported hydrocarbons.
However, the rise in the price of Russian Urals is significant for the Russian budget as the discount to Brent has reduced.

In the first quarter of last year, the average price of Urals was around $49 per barrel due to a large discount of almost $31 per barrel to Brent. However, this year, Russian Urals oil has been sold at an average of $67 per barrel due to the discount to Brent falling to an average of $17 per barrel, as noted by Milchakova.

The beginning of last year was challenging due to the European embargo on the purchase of Russian oil and petroleum products. This led to a search for new buyers, the formation of a fleet of carriers, and the creation of new logistics routes.

However, since then, the transformation has been completed, and new logistics have been established. Russian oil now has two large and regular buyers - India and China. Although the discount remains due to the sanctions, it has been reduced by almost half. This reduction has had a beneficial effect on Russian budget revenues.
In the first quarter of 2024, the average price of Urals increased by over 36% compared to the previous year. Russia also exports other lighter grades of oil to Asia, including ESPO to China and Sokol to India.

Russia also exports other lighter grades of oil to Asia, including ESPO to China and Sokol to India. These grades have a discount of no more than $15 per barrel compared to Brent. Therefore, the average price of Russian oil in the first quarter of this year is estimated to be around $70 per barrel. Therefore, Russia exceeded the plan for oil and gas revenues in the first quarter, as stated by Natalya Milchakova.

The prospects for budget replenishment look optimistic, as evidenced by the ruble price of Russian oil.

In the first quarter of 2024, the price of a barrel of Urals was about 6.5 thousand rubles, compared to only 4.2 thousand rubles for the same period last year. According to Vladimir Evstifeev, head of the analytical department of Zenit Bank, the current price of Urals crude oil in rubles is higher than the 6.4 thousand rubles set in the Russian budget.

The Russian budget's prospects are positive, with oil and gas revenues expected to grow and the deficit to decrease at least until the end of the third quarter. Currently, a barrel of Brent oil costs $89.9, while a barrel of Russian Urals oil costs $78.26.

Artem Deev, head of the analytical department at AMarkets, predicts that we will see quotes of around $91 per barrel of Brent and about $79 per barrel of Urals in the near future.

Currently, the dollar is trading at 92.58 rubles, the euro at 100.49 rubles, and the yuan at 13.05 rubles. Deev sees the following corridor: up to 91 rubles per dollar, about 99 rubles per euro, and 13 rubles per yuan.

Even if there is a lack of income in the second half of the year, Evstifeev concludes that the National Welfare Fund has sufficient funds to cover the deficit.