Cheaper oil will pull the ruble: how much the dollar will cost in December

By the end of the year, the rate may fall by 10 percent

World oil prices have turned back and rushed to the lower bounds long abandoned. Two weeks ago, a barrel of Brent cost $97, and today it is less than $82. And the Russian reference grade Urals is traded on the stock exchanges and is completely at a bargain price – less than $52 per barrel. The situation is influenced by a combination of powerful factors, primarily the drop in demand in China due to covid lockdowns and the slowdown in the global economy. For Russia, the oil peak will have at least one consequence: the ruble will definitely weaken against the dollar.

Meanwhile, commodity markets are awaiting the December 4 OPEC+ meeting in Vienna. If prices fall below $80 a barrel by then, the alliance will almost certainly decide to cut production. The only question is how much? In October, the community of producing countries “for the sake of ensuring price stability” cut it by a sensational amount of 2 million barrels per day – to 43 million b / d. It is unlikely that OPEC+ will act so radically today. The trend to reduce the price of oil emerged in the summer, when raw materials cost $125 at the maximum. Just in November, the process accelerated.

“Prices are being pushed down by two interrelated factors,” says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation. – Firstly, in China, due to new outbreaks of coronavirus, the authorities are introducing large-scale lockdowns, provoking civil protests and increasing anxiety in the markets. The demand of local enterprises for energy carriers is declining, which, in turn, affects the global energy balance, raw materials in the world are becoming cheaper. Secondly, the US Federal Reserve raises the refinancing rate, respectively, dollar loans become more expensive, they take less, less money goes to the exchange, and as a result, oil futures remain unclaimed.

As for the expected OPEC + meeting, it is unlikely that the alliance will want to revise production quotas. He is completely satisfied with the current price range of $80-90 per barrel: in order to stay within these limits, the participating states had previously agreed to reduce production by 2 million bpd. Now, if a recession occurs in the world at the beginning of 2023, then OPEC + may revise upward quotas, Yushkov argues.

“The main negative for energy carriers in recent days is the news from China, where a record increase in coronavirus cases is recorded (from 32,000 to 40,000 per day), strict quarantine measures are again introduced in many provinces, and civil disobedience is taking place,” the head of the analytical department notes. Amarkets Artem Deev. “According to forecasts, the demand for oil in the fourth quarter in the country will be 15.11 million b/d against 15.82 million for the same period last year.”

Of course, OPEC+ at the December meeting may agree on a new production cut, but this is unlikely to seriously affect prices, which will remain within $80-90 per barrel until the end of 2022, the expert believes. As for the impact on the Russian economy and financial system, one thing is clear so far: the ruble exchange rate reacted to the news from stock exchanges by weakening – to 60.63 per dollar and to 63.14 per euro. And if in December the trend for cheaper oil continues, the rate will very quickly reach the levels of 63 per dollar and 65 per euro.

“In the next 4-6 months, oil quotes will fall,” says TeleTrade analyst Alexei Fedorov. – Given the acceleration of the global recession, there are practically no other scenarios. Of course, OPEC+ to some extent manages to slow down the process: by cutting production in October by 2 million bpd at once, it managed to stabilize the market – until mid-November, quotes were traded in the range of $90-100 per barrel of Brent. However, over the past month and a half, macroeconomic negative has sharply increased. In particular, indicators of business activity in the US, the eurozone, and the UK have collapsed to their lowest levels since the pandemic spring of 2020.”

In addition, reminds Fedorov, the EU countries have so far failed to agree on the parameters of the marginal price for Russian oil, which increases the likelihood of maintaining the same volume of supplies from the Russian Federation. That is, the balance of the oil market is increasingly shifting towards excess supply, even taking into account the production cuts already carried out by OPEC+. This means that the alliance needs to take the next step, cutting it by another 1.5-2 million b/d. But it is unlikely that the OPEC+ countries will go for it in a situation where the mechanism of the “price ceiling” for oil from the Russian Federation has not yet been determined, and the consequences of its introduction are not clear. Perhaps, Fedorov argues, OPEC + will limit itself to a half-hearted decision to reduce production within 1 million bpd. In this case, oil quotes will stabilize in the range of $75-85 per barrel of Brent.

“From the point of view of filling the Russian budget, this option is more favorable, since a reduction in the trade surplus of the Russian Federation due to a “stepwise” decrease in the cost of oil can lead to a gradual weakening of the ruble by the end of the year – to 68-70 per dollar and to 70-73 per dollar. euro,” sums up Fedorov.