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Tuesday, March 13, 2018

OPEC has helped the ruble to reach record

The Russian currency highs last year and this year: the dollar fell to 62.3, the Euro – up to 70. And all this is due to the increase in oil prices above 50 dollars per barrel. Apparently, the market late, but still believed in the reality of the reduction of oil production by OPEC. Whether to wait for the care of oil to 60 and further strengthening of the Russian currency?

The ruble is hitting new records, updating the highs of the year. At the auction of the Moscow exchange, the dollar fell to 62,33 of the ruble, which is the minimum since October last year, the European currency became cheaper to 69,99 ruble – to at least July 2016.

“The area between 50 and 52 dollars is an area of serious resistance. If it is passed, then the oil can “catch” in about 60 per barrel until the end of the year

And all this is due to the increase in oil prices to the level of a five-week high. Brent is traded above the level of 50.5 per barrel. Last week prices broke the mark of 50 dollars per barrel immediately after the message on Wednesday from Algeria that OPEC unexpectedly agreed to cut production, though not much – by 0.7 million barrels per day.

However, the next day, the markets assessed the situation and did not believe OPEC. Even if in November and will be formally signed the agreement, there is no guarantee that OPEC members will abide by the new quotas. It has been a few years produce more than is allowed, and no one pays any attention, does not punish and does not conduct an audit. Why should this time be any different? So very quickly the first unexpected joy gave way to realism and oil prices went back below $ 50 per barrel.

However, on Friday oil has shown significant growth and Monday morning again trading above $ 50, providing one-year highs in the Russian currency. What happened?

The markets thought about it, weighed the pros and cons and decided that OPEC’s decision could still be balanced and useful. Besides, OPEC has softened the rhetoric and outlined the summit in Vienna on November 30. “It seems that market participants with some delay, but still believe in the reality of the agreement to limit oil production”, – says Olga Lapshina from Nordea Bank.

The reduction of production by 700 thousand barrels per day – just the same, the amount that will balance supply and demand in early 2017, says Valery Polkhovsky from Forex Club.

“Very important is the point that OPEC can remove the excess from the market amounts by the end of 2016. Prices will move in the range of 50-60, and slate companies in the United States will not be able to increase production up to this point. In 2017, the IEA and EIA, global demand will grow by 1.2–1.5 million barrels per day. In the US, production has declined by 1 million. In General, until, until we see that the rig count in the U.S. grows by 50 units in a week, expect that shale companies will rapidly start to ramp up production, not necessary,” – says Polkhovsky why oil began to feel quite comfortable.

Previously discussed the risk that if oil grows up to 50-60 dollars a barrel, it will return to the market of shale oil in greater volume. In the last year its production dropped sharply, as at 40 dollars per barrel of oil shale production unprofitable. But higher oil prices allow to increase the volume. That is, indicated a risk effect of the decline in OPEC production will be offset by the slates, and then why it all had to start. Now felt that the sense is: it can lead to balancing of demand and supply early next year.

According to Lapshin, the current level of oil prices in the range of 49 to 51 USD per barrel could be sustained for the whole of October.

In GK Forex Club believe that against this background the oil prices will consolidate above $ 50 per barrel. “However, this optimism while are not to be missed in order to raise the price is above $ 55 per barrel. Until the end of the year contracts with the nearest expiration date will be traded in the region of 50-60 dollars. In early 2017 as the implementation of OPEC’s decision, we can move to 60 dollars per barrel”, – says Polkhovsky.

From whether oil to develop positive and defend the level of $ 50 and above per barrel, will depend on the exchange rate. “If the answer is positive, the passage levels of 62.5–63 in the pair dollar/ruble will not keep you waiting. However, the approach to around 60 all the more exciting for the market, taking into account the budget exchange rate and possible steps by the regulator. While it is possible to say that the ruble is seen at levels of 62.5–64”, – says Denis Davydov from Nordea Bank.

However, Brent is not so easy to stay above $ 50 per barrel. “The area between 50 and 52 dollars is an area of serious resistance. If it is passed, then the oil can “catch” in about 60 per barrel until the end of the year. But it is likely that this time will be enough oil to throw it in the area below the 45 or even 40 per barrel,” the more pessimistic financial analyst FxPro Alexander Kuptsikevich.

As for the ruble, he noted the striking divergence of oil – the ruble is growing behind her, but only marking the support band, formed more than six months ago.

“Summer dream of the market is very much delayed. Volatility will inevitably come as soon as a concrete idea or will come up with new fear,” says a financial analyst.

Risks to year end are as 30th November OPEC meeting, when he promised to sign an agreement on production cuts, not whether there will be unpleasant surprises. If OPEC is still the first time in eight years, cut production, then the markets will estimate the impact of the decisions on the imbalance of supply and demand.

The second important point is the fed meeting in December. Encouraging macroeconomic statistics of States can make the American regulator to up the ante, and this, in turn, can result in a stronger dollar and falling oil prices.


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