The price of oil has soared: should we expect the ruble to strengthen?

For the first time since October last year, the price of benchmark Brent oil on the London Stock Exchange exceeded $91 per barrel during the trading session on April 5. Previously, the ruble always reacted to such news by strengthening, but this time the dollar refused to give up its positions and even strengthened on the Moscow Exchange to the level of 92.5 rubles. Why oil has ceased to be an important factor of optimism for the ruble, whether to wait for a barrel at $100 and how all this will affect the Russian economy, experts told MK.

Why is the price of oil rising on world markets?

Lyudmila Rokotyanskaya, stock market expert at BCS World of Investments:

“The main reasons for the growth of oil are the reduction in supplies from OPEC+ exporting countries and the escalation of tensions in the Middle East. The risks of Iran’s direct intervention in the Israeli-Palestinian conflict have increased this week. The implementation of this scenario is fraught with serious disruption to global oil supplies, since Iran is one of the ten largest oil producers in the world. Short-term support for oil prices is provided by the weakening dollar index observed this week.”

Will the cost of a barrel rise to $100?

Vladislav Antonov, financial analyst at BitRiver:

“If the conflict between Israel and Iran really escalates into war, then the price of oil will rise to $100 or more by the end of April. But if the conflict is resolved peacefully at the last moment, oil could fall to $85-87 per barrel.”

Vladimir Chernov, analyst at Freedom Finane Global:

“We expect an increase in global demand for hydrocarbons even before the start of rate cuts by world central banks, primarily from the world’s main importer of “black gold” – China. Growth in industrial production and expansion of business activity in the manufacturing sector will increase the country’s demand for crude oil and petroleum products. As a result, already in the second quarter of 2024, the cost of a barrel of the reference grade of Brent oil may rise to $96-98. And there will be very little left until the $100 per barrel mark; quotes can rise to it simply due to any surge in volatility, so we can say that it is quite possible to see $100 per barrel of Brent in the second quarter of 2024.”

How will high oil prices affect the Russian economy?

Arthur Meinhard, Head of Analytical Department for Global IC Markets at Fontvielle:

“For the first quarter of 2024, Brent gained 12.8%, with much of the growth occurring in March: for the month, this benchmark grade showed an increase of 6.1%. For the Russian budget, in particular, this resulted in 107 billion rubles in income above expectations (with total income from oil sales of 1.3 trillion rubles for March). In April, this positive trend continues, that is, we can say that there is a certain trend in the energy market, thanks to which the price of a barrel is rising.

And this trend is certainly positive for both Russian oil companies and the Russian budget, since they are its main donors. In addition, this provides an additional influx of foreign exchange liquidity into the domestic market and affects the trade balance, which means it works to strengthen the ruble.”

Vladislav Antonov:

“High oil prices continue to benefit the Russian economy. Moreover, Urals is sold on the world market at a discount of about $17 per barrel. This means that the state will receive excess revenues from oil exports and accumulate them in the National Welfare Fund, in accordance with the budget rule.”

Vladimir Chernov:

“In practice, the rise in world oil prices will reduce the discount on Russian export grades, Russia will be able to increase revenue from the sale of “black gold” and increase revenues to the deficit budget. This will not have a significant impact on the Russian economy, since an increase in budget revenues will only reduce the volume of borrowings by the Ministry of Finance on the domestic capital market to level out its deficit.

If the FAS restrains domestic fuel prices at gas stations from rising oil prices, then the impact on the Russian economy will also be minimal. If retail prices begin to rise following wholesale prices on the stock exchange, then their increase will begin to be included in the final cost of a product or service for the consumer, that is, inflation in the country will accelerate. The acceleration of the growth rate of consumer prices, in turn, will force the Central Bank of the Russian Federation to maintain a high key rate for a longer period of time, which in turn will slow down economic growth in the country.”

How will an increase in the price of a barrel affect the exchange rate of the ruble against the dollar, euro and yuan?

Dmitry Scriabin, portfolio manager at Alfa Capital Management Company:

“The ruble exchange rate is decoupled from the price of oil – mainly due to the fiscal rule. But the influence may be through the obligation to sell foreign currency earnings by exporters. That is, the more this revenue turns out to be, the greater the sales of foreign currency will be, so there is a chance of a slight strengthening of the ruble against other currencies in the future, all other things being equal.”

Alexey Krichevsky, financial expert:

“So far, rising prices have not affected the national currency in any way, because budget expenses are seriously growing and the treasury benefits from a weak ruble. In addition, there are OPEC+ agreements aimed at reducing production, and production at several refineries has been stopped due to the March drone attack. Logically, with such a serious rise in oil prices, the ruble should strengthen somewhat, but it still shouldn’t be expected to fall below 90 rubles per unit of American currency – the budget needs the Russian currency as it is now.”

Vladislav Antonov:

“An increase in oil prices in general will not be able to affect the ruble exchange rate, since due to the oil price ceiling, this relationship has undergone radical changes. In the coming days, you can expect the dollar within the range of 90-93 rubles, the euro within the range of 98-101 rubles, the yuan – 12.5-13 rubles.”

Vladimir Chernov:

“Rising oil prices will keep the Russian ruble from depreciating, and in April 2024, a slight rise in price of the Russian national currency cannot even be ruled out while the presidential decree “On the mandatory repatriation of foreign currency earnings by exporters on the stock exchange” is in effect.”

In April 2024, we forecast trading in the range of 90–93 rubles per dollar, 99.5–101.5 per euro and 12.6–12.9 per yuan. And from May 2024, the Russian currency will begin to gradually depreciate and in the second half of the year we expect the dollar exchange rate to rise to 95–100 rubles, the euro exchange rate to 105–109, and the Chinese yuan to 13.4–13.75 rubles.”