17 Sep 2009 14:12

Kudrin expects oil prices to correct in 3-6 mths

MOSCOW. Sept 16 (Interfax) - Oil prices could correct down in the next three to six months, Deputy Prime Minister Alexei Kudrin, who is also the country's finance minister, said at the Federation Council.

A correction could start when the Federal Reserve starts taking liquidity from the market, he said.

Kudrin added that over the last half year, oil prices had increased over 50% from $40 per barrel to $70 barrel despite of a drop in oil demand. He said that this contradictory tendency is taking place because of high liquidity, which has been injected in to the economy by central banks. He said that this liquidity "has not landed in the real sector and had gone to commodities groups as an investment saving instrument." Therefore, Kudrin concluded that the current oil price is "overheated".

He added: "In three months or six months, when the Federal Reserve System begins to pull liquidity off the market, the signs of inflation will only start to appear. We will have a correction in [oil] prices."

Kudrin said that, starting from 2013, Russia could start living at a price of $50 per barrel in like-for-like prices. "I think this would be the average long-term price," he said.

Kudrin said that over the next three year "we will live at $57-$60 a barrel," stressing that "this price nonetheless remains a risk."

In oil prices are at $58-$59 per barrel in the next two years as the government has predicted, the change in price compared to the current level will not have a major impact on stock indices, he said.

"[Oil prices] have already corrected. Investors are already factoring in the risk of oil price volatility," he said, adding that this is precisely why the recent drop in prices from $74 per barrel to $66 per barrel had virtually no effect on global stock indices.