Oil prices have fallen to their lowest levels in the last 14 months. But analysts say prices may continue to fall, because the global economy continues to slow, resulting in no reason to expect energy prices to resume growth.

Oil most likely will cost between $50 and $70 per barrel next year. Russian officials must hurry to review the 2009-2011 budgets to keep them in the black. At the same time, President Dmitry Medvedev has expressed astonishment at exceedingly high domestic fuel prices.

About two years ago, when oil cost $70 per barrel, economists said the global economy would be unable to function with such high oil prices. The economy has adjusted to these prices, but it will be more difficult for the world, and especially oil-exporting countries, to return to cheap oil.

The Russian budget is based on oil prices of $95 per barrel, and the leading crude producers' investment plans were formed on the assumption that oil prices will exceed $100.

Much has been said about the speculative nature of high hydrocarbon prices. Oil futures and other commodity securities have become an alternative currency in which speculators readily invested. Their enthusiasm was fed by the nearly mystical belief in the unstoppable growth of the global economy, which would need a growing amount of resources.

Raw materials providers had nothing to worry about in that scenario. Also, speculative demand was spurred by the rapidly developing Chinese and Indian economies, which needed ever increasing hydrocarbon imports. Some hotheaded experts even predicted that oil prices would soar to $200 per barrel before the end of this year.

The financial crunch is an abstract disaster for the majority of Russians, but everyone will hear the loud pop of the oil bubble. Hydrocarbons are Russia's main export, providing more than half of its export income and the bulk of the budget revenues.

Russia's 2008 budget is based on oil prices of more than $90, and similar figures form the core of the 2009-2011 budget.

The Finance Ministry claims there is no reason to review the three-year budget. But then it also said the 2009-2011 budget would be deficit-free even if oil prices fell to $70, which is approximately what Urals crude now costs.

The Russian economy may have a deficit budget and a negative trade balance for the first time in several years. This means the government will have to dip into reserves to pay for budgetary programs and for the growing amount of imports. The state will be unable to adjust the wages of public-sector workers to inflation, and pensioners may not receive the planned 30 percent increase in 2009.

Paradoxically, fuel prices in Russia remain very high, even though they have fallen in the United States following the plunge in oil prices. The increase in jet fuel prices in Russia in August-October has led to a crisis in the airline industry, with flights delayed or canceled by the hundreds and ground services denying maintenance services to debtors.

This is not surprising, as it is not the market but the insatiable appetites of oil companies that regulate fuel prices in Russia. In midsummer, when oil cost $140, prices of jet fuel were higher in Russia than on the London exchange. Now that global prices have taken a plunge, large oil producers want to make up for their losses by shifting the burden to their Russian customers.

In the last few years the government pretended not to notice the pricing games of the oil companies. Officials sometimes chided crude producers but didn't do anything to stop the growth of domestic prices. This is logical, because the oil sector is one of the drivers of the Russian economy, tax deductions from domestic hydrocarbon sales make up a substantial part of budget revenues, and Rosneft, the largest crude producer, is controlled by the state.

Fuel consumption continued to grow despite rising prices in Russia. But the economic crisis has forced the government to cast a fresh look at the problem and admit that unjustifiably high commodities prices are increasing the outlays of Russian companies and making their output and services uncompetitive.

Medvedev has described the situation with jet fuel prices as unacceptable and instructed the Russian government to take decisive anti-trust measures to regulate them, up to and including the launch of criminal proceedings. The task has been turned over to the Federal Anti-monopoly Service and law-enforcement agencies.

Deputy Prime Minister Sergei Ivanov, who is responsible for the fuel sector, has said that since oil prices dropped by half, domestic fuel prices should be reduced accordingly. We will see in the next few days if this was a direct order or another mild chiding.

(Vlad Grinkevich is a RIA Novosti economic analyst. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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