A dramatic situation for Russia began to take shape on the oil market

And the exchange rate of the Russian currency may collapse due to a serious budget deficit

The hitherto serene oil market is in a storm: the Brent brand unexpectedly lost more than 4%, falling in price to $71.9 per barrel. And, although then quotes rose slightly, experts saw in what happened a formidable harbinger of an imminent global crisis. Meanwhile, the ruble, which in the recent past in such a situation was steadily collapsing, this time has strengthened. There is hope that the exchange rate of the Russian currency has truly “got rid of oil” in the new realities.

Quotes fell due to a combination of several factors – large and small. First, the US Federal Reserve raised the key rate by 0.25% as a measure to combat inflation; secondly, at the end of April, the American First Republic Bank (14th in the country in terms of assets) was on the verge of collapse, and thirdly, rather weak data on the index of business activity in China appeared this week.

Fuel was added to the fire by the words of US Treasury Secretary Janet Yellen, who said that the debt ceiling could be reached as early as early June. In theory, this means the risks of default of the largest economy in the world.

At the same time, the market ignored the news that from May 1, nine OPEC+ countries began to further reduce production by 500,000 barrels per day. Previously, Russia announced a reduction in production in the same volumes. The reason lies on the surface: earlier, other exporters that are not members of OPEC + (for example, the United States and Norway), on the contrary, began to increase production, introducing some confusion into the overall price and commodity environment. It looks like something unintelligible is happening to the global economy and a full-blown crisis is just around the corner. Anxiety about this is growing, the demand for oil is falling, respectively, energy resources are getting cheaper.

“In the near future we will witness a serious price carousel in the commodity market,” says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation. — Fears in connection with the growing recession will push prices down, but this will be counteracted by the OPEC + countries, reacting to each event, consistently reducing production. As for the domestic brand Urals, it also cannot avoid a reduction in price, as well as quotations of Brent and WTI grades traded on the stock exchange.”

For Russia, the situation is dramatic in that we also have to provide customers with a fairly large discount. If the price of Brent falls to $70, then Urals will be in the corridor of $45-50 per barrel. For the federal budget, this is extremely undesirable, since our treasury is made up at the rate of $70 per barrel. It all depends on how long the period of low prices lasts, Yushkov sums up.

However, our country has an option to survive difficult times. “China has reduced the volume of purchases of Western grade oil and increased the import of Russian raw materials,” explains Artem Deev, head of the analytical department at Amarkets. – Although Beijing buys Russian oil at a discount to Brent, however, discounts in April fell to a minimum. This means that Urals loses less in price than Brent and WTI. This will partly support the ruble.

Nevertheless, the position of the Russian currency continues to be rather shaky. The main factor that today puts pressure on the “wooden” rate is the budget deficit, and oil quotes do not play a special role. The government needs to solve the problem of falling export earnings, and the most obvious way is the gradual devaluation of the national currency on its own.”

According to Deev, right now OPEC + will not further adjust production downwards. It is not advisable to do this: until China restores the previous volumes of hydrocarbon consumption, the measure will not give the desired effect.

If we talk about the relationship between the ruble exchange rate and oil prices, it is minimal today, says financial analyst Sergei Drozdov. The fact is that there are no foreign players on the Russian markets – foreign exchange, debt and stock markets, whose share in the past exceeded 50%. Among them were large American funds, which acted mainly according to speculative schemes: they bought currency on a positive (including raw) market conditions, and sold them on the slightest negative. Because of this, the markets were in a fever, the ruble was weakening. Now that the Western players are excommunicated from the domestic financial system, they have practically no opportunity to drop the Russian currency.