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#3 - JRL 7219
Russian Premier Says Optimal Oil Price Is $20-$25/bbl
By Guy Faulconbridge

June 11 (Bloomberg) -- Russia, the world's second-biggest oil producer, needs the price of Urals blend crude oil to be between $20 and $25 a barrel, said Prime Minister Mikhail Kasyanov.

``A high price is bad for us and low price is bad for us: a fair price is $20-$25 which is good for us,'' Kasyanov told journalists after addressing parliament. ``A price of $20 for our oil is a normal price and we consider this is the medium price we would like to have.''

Russia's economy is set to grow more than 4.5 percent to about $410 billion this year, a fifth year of growth, as top oil producers such as AO Yukos Oil Co. and OAO Lukoil boost exports and consumer demand drives expansion at mobile phone companies such as OAO Mobile TeleSystems, Russia's biggest wireless operator.

Oil has played a central part in Russia's recovery from the country's 1998 default on $40 billion in domestic debt and helped the country sustain its longest economic boom since the collapse of the Soviet Union in 1991.

Russia, the world's biggest oil producer before the fall of the Soviet Union, is trying to upgrade its pipeline network to regain the top spot from Saudi Arabia.

Economic Growth

The economy grew 6.4 percent in 1999, 10 percent in 2000, 5 percent in 2001 and 4.3 percent in 2002. Growth may total as much as 5 percent this year, according to government estimates. Oil, gas, coal and electricity account for about one quarter of gross domestic product, according to the government.

Brent crude averaged $24.54 per barrel since the start of 1999 while Brent averaged $17.09 per barrel in the four years leading up to 1999.

Russia's benchmark 2030 dollar bond, the most traded emerging market Eurobond, rose 0.38 cents on the dollar to 99.94 cents, cutting the yield to 6.56 percent, according to Merrill Lynch & Co. prices.

Russian bond prices, a way to gauge investor perceptions of risk, rose to records this month while the benchmark Russian stock indexes rose to a five-year high intraday high.

Russia's RTS stock index and Russian bond indexes are the best performing stock and bond indexes over the past 5 years, according to Bloomberg data.

Spreads between Russian Eurobond Indexes and U.S. Treasuries of the same maturity have narrowed to 287 basis points from more than 2,650 basis points the day before Vladimir Putin took over from Boris Yeltsin in 1999 and 6,800 basis points following Russia's domestic default in 1998.

Less Dependence

Russia should try to ease its dependence on oil and commodities, according to investors such as George Soros, chairman of Soros Fund Management LLC.

Russia ``remains exceedingly dependent on natural resources and would become much better balanced if you had the development of other enterprises,'' Soros told students in Moscow last week. ``You need to use the good times to bring about those structural changes that will then make it easier to adjust at a time when say oil prices really do drop significantly.

The country's bureaucrats, schooled in the Soviet Union, still stifle economic growth with reams of paperwork and foster corruption, according to Stephen Jennings, chief executive of Moscow-based investment bank Renaissance Capital.

``The bureaucracy remains a dead weight on the economy and the sheer weight of red tape obstructs the formation of new business,'' Jennings said. ``The over-burdensome bureaucracy and the weak legal system create an ideal breeding ground for corruption.''

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