Oil pulled up in rubles

Last week, the cost of Russian oil Urals for the first time since mid-June rose above 5 thousand rubles. In three weeks, it has risen in price by a third, which was associated with the restoration of the dollar price of oil against the backdrop of an effective redirection of supplies to Asia. However, due to increased budget spending, even maintaining prices at current levels will not save it from a deficit at the end of the year.

The ruble price of Urals for the first time since mid-June rose above the level of 5 thousand rubles. per barrel. According to Profinance.ru, Friday quotes reached 5028 rubles. per barrel, which is almost 2% higher than Thursday’s close. Even taking into account the correction and price reduction by the close of trading to 4935 rubles. it is 33% above the one and a half year low set on August 5.

The rapid rise is primarily due to the increase in the dollar price of Urals, which returned to the levels of early July.

According to Profinance.ru, on Friday the price of Russian oil reached $83.69 per barrel, adding 38% in three weeks. As a result, the spread with North Sea Brent oil, the price of which rose only 2.3% in three weeks, to $100 per barrel, narrowed to 17%, from 25-32% in April-July.

According to Mikhail Sheibe, Commodity Markets Strategist at SberCIB Investment Research, the discount is shrinking as new sales channels for Russian oil are built and adjusted. In the spring, many European consumers refused to buy it from companies that fell under the sanctions, and they were forced to redirect flows to other regions, primarily to Asia. As a result, offshore exports of Russian oil to the region increased from 1-1.2 million barrels per day in early 2022 to 1.7-2.1 million barrels per day. The narrowing of the spread may continue. “One of the key points contributing to the reduction will be the formation of an increasing number of direct medium-term and long-term contracts with fixed discounts, minimizing the participation of a speculative component in the sales chain,” Mr. Scheibe believes.

The recovery of prices is positive for the Russian budget, since the average value for the year included in it is at the level of 3.2 thousand rubles. does not cover unplanned expenses.

But the current upswing is not enough. According to the head of the analytical department of Zenit Bank Vladimir Evstifeev, even with 5 thousand rubles. the budget will be in deficit. “Spending remains at a high level, in August we expect the deficit to continue,” adds Mikhail Vasilyev, chief analyst at Sovcombank.

The rise in oil prices has little effect on the stock market.

In three weeks, since August 5, the Moscow Exchange Oil and Gas Index has grown by 8%, while the broad market index has grown by 9.5%. In part, this may be due to the lack of transparency in transactions with Russian oil. As Aleksey Kokin, chief analyst at Otkrytie Investments in the oil and gas sector, notes, Argus reported on the narrowing of the Urals discount to Brent to $15 per barrel back in July, while Platts and Reuters still estimated it in the range of $30-40 per barrel: “Probably, they observed different segments of the market. Therefore, I am not sure that a price increase of 30% in recent weeks is a reality.”

Companies have stopped publishing interim IFRS reports, which makes it impossible to compare these agencies with the oil industry’s revenue. In addition, the prices of companies’ shares are affected by the expectation that the EU will apply an embargo on offshore supplies of Russian oil (from December 5, 2022). “So far, there is no unequivocal answer to the question of how much oil exports Russian companies will be able to keep. New oil exports to India and China are not enough to close the entire volume of oil exported by sea to the EU,” Andranik Manovyan, an analyst at Ingosstrakh Investments Management Company, notes.

Partially falling oil revenues can compensate for the growth of the dollar against the background of the start of the updated budget rule.

“Return Realization budget rule in a modified form before the end of the year may become a reason for the weakening of the ruble, which will have a positive impact on the execution of the revenue side of the budget,” notes Vladimir Evstifeev. By the end of the year, the ruble will also be under pressure from a gradual recovery in imports, a further reduction in the key rate, and easing in capital restrictions for friendly non-residents. According to Mikhail Vasiliev, by the end of the year the dollar exchange rate will return to a comfortable level of 70–80 rubles/$. But even in this case, he expects a federal budget deficit for the year at the level of 2.6 trillion rubles.

Vitaly Gaidaev