Oil prices fell into self-isolation

The cost of European Brent oil has updated a seven-month low. Its quotes fell below $90 per barrel, losing 13% in seven days. Prices are falling due to the risks of aggressive rate hikes in the US, lower demand from China due to anti-COVID measures and soft restrictions on oil production from OPEC +. The current decline has so far had a limited impact on the Russian financial market.

The cost of European Brent oil on September 7 for the first time since February fell below $90 per barrel. According to the resource Investing.com, the cost of the November contract for the supply of North Sea oil fell to $ 88.93 per barrel, the lowest since February 3. On the spot market, the price of Brent reached $90.9 per barrel, losing 3.4% in a day. The cost of Russian oil Urals, according to the resource Profitfell by 4.8% to $69 per barrel, the lowest since mid-August.

A steady decline in prices has been going on since the end of August. During this time, prices in the European market fell by 13-20%.

Pressure on fuel quotes is exerted by fears of a decrease in demand for it due to increased risks of a slowdown in the US and European economies, as well as a further increase in interest rates by the Fed.

According to Evgeny Mironyuk, an expert on the stock market at BCS World of Investments, on Wednesday futures for the Fed rate indicated that it would be increased by 75 bps in September. with a probability of 80%, while a few days earlier the probability was estimated at 57%.

The risks associated with the tightening of quarantine measures in China have been added to the risks of a slowdown in the leading economies of the Western world, which, according to Mikhail Sheibe, commodity market strategist at SberCIB Investment Research, increases fears of a global recession.

In China, strict measures to combat the spread of coronavirus naturally reduce the demand for motor fuel. In particular, the regime of self-isolation was extended in the metropolis of Chengdu, where 21 million people live. Beijing is stepping up lockdown measures following the discovery of new infections, while Shenzhen maintains strict controls on the movement of the population. As a result, the mobility of about 65 million people across the country has been restricted so far.

“At the moment, it seems most likely that oil demand in China this year will not exceed last year’s figures and remain around 15.5 million barrels per day,” Mr. Scheibe believes.

Under such conditions, even OPEC’s decision to cut oil production in October has a limited impact on the commodity market.

At the beginning of the month, the countries decided to reduce the quota by 100 thousand barrels per day (see “Kommersant” of September 6). Thus, the parties to the transaction returned to the level of production agreed upon for August. “Apparently, the OPEC + decision itself, given the scale of the decline, is not able to compensate for the negative on the market associated with the expectation of a global recession and a decrease in demand for oil in China,” Andranik Manovyan, an analyst at Ingosstrakh Investments, notes.

The fall in oil prices had a negative but limited impact on the Russian stock market. On Wednesday, the ruble index of the Moscow Exchange fell by only 1%, to the level of 2401.57 points. The branch index “Oil and gas” decreased by 1.17%. “Share prices are much more affected now by the potential impact of an embargo on Russian offshore oil supplies, given the possible approval of a price ceiling,” Mr. Manovyan explains.

More tangible in the moment was the reaction of the foreign exchange market. At the beginning of the day, the dollar exchange rate on the Moscow Exchange rose by 32 kopecks to 61.55 rubles/$.

However, it was not possible to consolidate the success, and following the results of the auction, the rate rolled back to 60.79 rubles / $ – by 45 kopecks. below Tuesday’s close. “The influence of oil prices on the ruble exchange rate is weak, since at the moment the dependence of the Russian economy on external factors has decreased due to economic restrictions,” says Geldy Soyunov, head of the structured products department at Zenit Bank. The main movements of currency pairs, in his opinion, are formed by such internal factors as tax payments at the end of calendar months, which leads to the strengthening of the Russian currency.

Vitaly Gaidaev