Bloomberg News

Lukoil Drops on Election Threat to Tax Cuts: Russia Overnight

September 14, 2011

Sept. 14 (Bloomberg) -- Russian oil producer OAO Lukoil tumbled in U.S. trading after the International Energy Agency said the government may delay oil industry tax cuts to preserve budget revenue ahead of elections.

American depositary receipts of Lukoil, Russia’s largest independent oil producer, fell 1.4 percent to $56.94 in New York, the lowest level since Aug. 22, after dropping 0.6 percent to 1,710.60 rubles, the equivalent of $56.62, on the Moscow- based Micex index. OAO Gazprom, the world’s biggest natural gas exporter, dropped for a fourth day in New York, losing 1.1 percent to $10.89, after sliding 1 percent on the Micex to 163.89 rubles, or $5.43. The Micex may fall 1 percent today, according to Alfa Bank. Stocks in Asia retreated.

Cuts to export duties on some oil products approved in August by Russian Prime Minister Vladimir Putin may be postponed as the government seeks to maintain a budget surplus in the run- up to December’s parliamentary elections and the presidential poll in March, the IEA said in an oil market report published yesterday. Energy sales contribute as much as 40 percent of Russian government revenue, Finance Minister Alexei Kudrin said in June.

“If they repeal those tax breaks, that would be a further negative for oil companies, which would probably diminish production on a short-term basis,” Tom Furda, director of Russian equity sales at Auerbach Grayson & Co.’s Moscow-based brokerage partner UralSib Financial Corp., said in a phone interview yesterday. “It’s classic electioneering to tax oil companies. It helps your popularity when you tax oil companies. That’s a risk for the producers.”

U.S. Fuel Demand

The price of oil, Russia’s biggest export earner, snapped a two-day advance in New York today, slipping as much as 0.4 percent to $89.81 a barrel in after-hours trading as investors speculated rising gasoline stockpiles in the U.S. signal fuel demand is faltering. Urals crude, Russia’s chief export blend, fell 0.4 percent yesterday to $113.74.

United Co. Rusal, the largest maker of aluminum, climbed 2.6 percent to HK$8.02 in Hong Kong as of 9:58 a.m. local time. Changes to Guinea’s mining laws mean investors will find it “senseless” to agree on new projects for the country, Rusal said yesterday.

Russia’s RTS futures rose, indicating the Moscow-based index may climb for a third day. The contracts added 0.4 percent to 158,0105 yesterday, while the RTS Index gained 0.3 percent to 1,572. The nation’s 30-stock Micex index also advanced 0.3 percent to 1,498.16.

Rising Volatility

Stocks in the U.S. were buoyed as French banks reassured investors over their access to funding and Germany’s Chancellor Angela Merkel said Greece is taking the right steps to get its next bailout payment. U.S. lenders Wells Fargo & Co. and Fifth Third Bancorp led the Standard & Poor’s 500 Index up 0.9 percent to 1,172.87.

The Bloomberg Russia-US 14 Index of Russian companies traded in New York fell for a fourth day, retreating 0.7 percent to 278.0404. The RTS Volatility Index, which measures expected swings in the index futures, rose 2.5 percent to 46.87 points.

“Merkel’s comments may have helped to bring comfort,” said Ian McCall, managing partner at Quesnell Capital SA, an emerging-markets investment advisory in Geneva that manages about $114 million of assets. “But the overall market doesn’t know where it’s going. There’s just a real lack of conviction.”

The Market Vectors Russia ETF, a U.S.-traded fund that holds Russian shares, retreated 0.7 percent to $31.05, while the Bank of New York Mellon Russia ADR Index dropped 0.6 percent.

The Micex has lost 11 percent in 2011 and trades at 5.6 times analysts’ earnings estimates. That compares with a 20 percent slide for Brazil’s Bovespa index, which trades at 9.5 times estimated earnings, according to data compiled by Bloomberg. The Shanghai Composite Index trades at 11.4 times estimated earnings, and the BSE India Sensitive Index has a ratio of 13.8.

The euro was recently little changed versus the dollar at $1.3676 from $1.3678 yesterday.

--Editors: Emma O’Brien, Darren Boey

To contact the reporter on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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