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Why $50 crude may be the ‘sweet spot’ for this big oil producer

Crude oil futures at $50 per barrel could be the ideal price for Russia's energy companies to thrive, an emerging market-focused bank said on Thursday.

"A $50/bl oil price represents a sweet spot for the sector, leading to improved returns on capital via a relatively low effective tax take, continued pressure on suppliers, focus on costs and strength of balance sheets," Ildar Davletshin and Evgeny Stroinov, analysts at Renaissance Capital, said in a report.

Crude oil refining in Russia
Andrey Rudakov/Bloomberg via Getty Images

Russia overtook Saudi Arabia to become the biggest exporter of oil in the world last year, according to data from BP.

Light crude futures for September currently trade at around $40 per barrel. They rallied between February and June before paring some gains, and remain far below peaks above $110 reached prior to mid-2014.

"We see the current oil price drop as a temporary correction in a medium-term recovery trend on the back of rebalancing oil markets," Davletshin and Stroinov said.

Crude prices in the fifties may be good for other oil-producing nations as well. In June, the Egyptian Minister of Trade and Industry Tarek Kabil told CNBC that $50-$55 per barrel was the "sweet spot" for his country, which is the largest non-OPEC producer in Africa.

A worker checks the valve of an oil pipe at an oil field owned by Bashneft company near Nikolo-Berezovka, Bashkortostan, Russia.
Sergei Karpukhin | Reuters

Renassaince Capital said short-term risks to Russian energy stocks included a possible move by the government to raise taxes from the sector and the forthcoming privatization of oil producer Bashneft. The bank estimated Russian energy companies could shortly face an extra 300 billion rubles ($4.5 billion) in taxes.

"As for (the) Bashneft privatization, we think the process lacks consistency, which we view as negative. We think it is quite possible that a deal may be postponed until after the presidential elections due in 2018 — in which case higher taxes are almost inevitable, in our view," Davletshin and Stroinov said.

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