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Wednesday, August 23, 2017

How much will it cost the ruble in the medium term

In recent days the rouble again falls behind the cost of oil. Meanwhile, the relationship between the ruble and the oil is now minimal, especially in comparison with the contribution of speculators. The harder it is to predict what will be the rate of the national currency and how much will be given per barrel in the medium term. But analysts have the answer to this question.

Many analysts of the oil and gas market agree that in the medium term, world oil prices are unlikely to fall below $ 40 per barrel. However, this does not mean that the sustainability of such prices, the ruble exchange rate will be fixed at current levels. Today on the ruble have a significant impact and other factors – the need to balance the state budget, the General trends in the economies of developing markets and not least the actions of speculators, which contributes to a policy of the Central Bank.

Nowhere to retreat?

“It does not matter who these speculators – financial foreign or Russian company insiders. More importantly, last year the turnover of currency in Russia exceeded the needs of the real economy”

Based on the most currently available forecasts of oil prices in the current year and next year, the minimum price level below which, according to analysts, black gold will not fall for a long time, $ 40 per barrel. It is up to this level, oil prices quickly rebounded after a sharp drop early in the year, although he did not dwell on it – by the end of June a barrel of Brent crude gave $ 50.

This short-term dispersal clearly contributed to additional factors. The Deputy chief of Department of the analysis of the share market of investment company “VELES Capital” Vasily Tanurkov recalls, in particular, the number of force majeure this spring, which led to disruptions in supplies of hydrocarbons: fire in the canadian province of Alberta where there are large deposits of oil Sands, the decline of production in Nigeria to a 22-year low in connection with the terrorist attacks, and so on. In addition, a certain contribution was made by the speculators, intensified the new wave of higher oil prices.

However, in July the price of oil went back down, reaching to the present level of $ 42 per barrel. The predictions for the future interviewed by the newspaper VIEW, analysts diverge significantly.

Spring force majeure factors no longer apply, therefore there was a sense that the market has a glut of oil, plus speculators cut long positions, points Tanurkov. – Although, in fact, last month the situation is not very changed. For example, OPEC production rose in July on 100 thousand barrels, but production in the United States, on the contrary, decreased. So now the fall in oil prices is more emotional. Probably in August there will be a pullback from current level, which does not seem to be rational.

The world’s largest exporters and consumers of oil and the countries that are its greatest proven tapasya days 20 largest investment banks has published a forecast for average oil prices in 2017, $ 57, reminiscent of Tanurkov, and to achieve this level it needs by the end of this year to reach the level 50-55 dollars. The analyst believes this forecast is justified. An equally optimistic point of view, a month ago presented the U.S. Department of energy, according to the forecast by the end of next year, the price of a barrel of Brent could rise to $ 60.

Chairman of the Board of Directors of Creon Energy fares Kilzie, in contrast, believes that the level of 40 dollars per barrel is the equilibrium price that suits both producers and consumers. “A temporary price increase to $ 50 is only the inertia encountered in the process of rebound after the failure at the beginning of the year with the participation of speculators,” explains Kilzie. But at the level of 50-52 per barrel, the growth fizzles out, the price starts to come back into line with the level of production. The 40 dollars is the target which will support the producers: if the price will fall below, they will make every effort to maintain it”.

It is the production, according to experts, is now the main reference point in assessing the value of oil. “Oil in the world a lot, even too much – not the 2 million extra barrels, and about 3-3,5 million, and in some months even up to 3.8–4 million, if to take into account alternative sources in the form of shale hydrocarbons”, – says fares Kilzie, urging people not to surrender to the illusion that oil price will grow as predicted by investment bankers. The same view is shared by IMF experts, who in early June predicted the average cost of a barrel of Brent in 2017 at the level of $ 42 – $ 6 higher than the forecast for the current year.

The boundaries of the ruble protivogaz

The reaction of the Russian currency, the spring recovery of the cost of oil was predictable. After reaching a peak in 83,59 item for one dollar on 22 January, the ruble started to strengthen and on July 20 reached the lowest this year level – 62,99 for a dollar (last time on a comparable level, the ruble was last October). Did not stop the strengthening of the ruble and the July drop in the price of oil for three weeks, they moved in opposite phase, and only in the last days the ruble has lost about 2.5 points against the dollar.

“Over the past weeks, the strengthening of the ruble contributed to several factors, explains the situation of Tanurkov. – First of all, to the twentieth of July, many companies have converted the currency into rubles to pay dividends, which created an excess supply of currency. Secondly, for international investors, the ruble is not only a currency, which is focused on oil, but also one of the currencies of developing countries, which over the last eighteen months strengthened markedly against the dollar, and it also supports the ruble”.

According to Tanurkov, the latter trend will continue, including the fact that the situation in the economy of China is in fact significantly better than expected at the beginning of the year. In addition, the strengthening of the currencies of developing countries against the dollar pushes up oil prices.

In turn Kilzie, based on the optimal, in his opinion, oil prices at 40 dollars a barrel, believes that the level of the ruble – about 67 per dollar. “However, from the point of view of filling the state budget to the desired rate of 75-80 rubles per dollar, so if more or less sustainable preservation of oil prices at around 40 dollars per barrel from a level of 67 rubles per us dollar will have to break through the inclusion of the printing press,” he predicts. And come to that not only Russia and other countries will balance their currencies based on the needs of the budget, not the cost of oil, and this will mean that the principles of exchange rate, which operated last 30 years, will leave in the past. The same thing is observed in the formation of prices for gas: if earlier it was tied to the cost of oil, now “Gazprom export” insists on the need to “decouple” these prices are from each other.

The invisible hand of the speculator

Meanwhile, it is believed that the dynamics of the ruble no longer has any reference to the movements in oil prices and a major factor in the exchange rate is the activity of financial speculators. The root cause of such a situation can be considered the decision of the Central Bank of the Russian Federation to translate the ruble a free-floating regime”, accepted in early November 2014. At the moment, the dollar showed a rising trend amid declining oil prices, however, after the removal of the regime of the currency corridor the fall of the ruble has accelerated sharply, and then in the foreign exchange market reigned volatility. So if before the change in the cost of oil at two dollars correspond to the movement of the ruble by about one point, now on any stable ratio between these two quantities can be forgotten.

“In those days, when the ruble is correlated with the price of oil, a large part of foreign exchange liquidity was accounted for by export revenue and the rate changes determined by changes in export income, i.e. the change in oil prices, says independent analyst Alexander polygalov. – At the end of 2014 to the first half of 2015, the ruble exchange rate is mostly determined by these factors and in terms of the expectations of the course, and in terms of actual inflow and outflow of foreign exchange liquidity. However, with the transition to a “free floating” of the ruble suddenly turned out that the turbulent foreign exchange market, where the rate within a few weeks changes from 50 to 80 rubles to the dollar, with the right actions promises a very high return on investment on the horizon in a few months. In other words, the situation was very attractive to all sorts of speculators.

According to experts, it is now not so important who these speculators – financial foreign or Russian company insiders. More importantly, last year the turnover of currency in Russia exceeded the needs of the real economy (in terms of exports and imports of goods and services) at times – in some periods of eight to ten times. In other words, the inflow of foreign currency in Russia is determined by the oil revenue is not in the first place. “A similar situation will occur for at least as long as the Central Bank will not abandon the policy of free floating of the ruble. However, in the current situation, such a failure is very unlikely,” – said polygalov. On the current situation he believes that the ruble, apparently, is at the foot of the next speculative wave of devaluation of a few weeks or months.

Into the hands of speculators plays and the policy of high interest rates, persistently practiced, the Central Bank (the office of Elvira Nabiullina took the decision to maintain the value of the key rate unchanged at 10.5%). “Keeping rates high helps the profitability of carry-trade involving the opportunity to earn on the difference in rates, explains Tanurkov. It draws on market speculators, and the only way to affect it significantly, to 7-8%, to reduce the key rate of the Central Bank, but this is not happening”.

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