I’m sorry to disappoint you, but we need to recognize that the days when a barrel of oil cost $100, are gone forever. I think that the fall in oil prices is not compensated either in 2016 or in 2017. But the good news is that the future will not collapse. We forecast that the price of Brent crude oil will fluctuate at the level of $30 per barrel. However, because of supply reduction, economic problems in alternative energy and consolidation in the oil industry the price can rise to $40 by year’s end. Can it be even higher? Of course, no. Recently some experts have voiced predictions that the price can drop to $20 per barrel, but, in my opinion, and this is unlikely.
Here’s the thing: on the one hand, the US reduces the production of shale oil, as due to the fairly high break-even point of shale fuel — $55 per barrel, producers are losing money on every barrel. Canada also reduces expensive production (for them, the break-even point — $65), and with it the UK and Norway. Shell (the largest oil and gas company) ceased to invest in oil production in Alaska. At the same time, Iran is increasing oil production after the lifting of sanctions. They have no choice: they must solve the problem of unemployment and economic recession. In General, some factors are pushing the oil price up, other down — and in the end she will remain at the current level.
But instead of an accurate forecast will tell the story: I came to Amsterdam for a conference, walked out of the airport and was going to take a taxi. Immediately I caught myself thinking that machine look kind of weird: it appeared that all taxis at the airport Tesla electric cars. Here is another example: in my family, five cars, but I never get around London by car. It’s stupid to waste time in traffic jams, and at the entrance to the centre you have to pay. What does all this say? I think that in 10-15 years most cars will run on electricity. But the auto industry is the main consumer of petroleum products.
The ruble is one of the most undervalued currencies in the world. I think its weakening has ended. Our forecast for this year, the ruble exchange rate in the range of 70-80 rubles per dollar, though if sanctions are weakened, the ruble may strengthen. In 2015 we have seen a decline of the Russian economy is 3.5%, but in the second half of 2016 will see 0,5–1% growth. Inflation in January amounted to 9.8% yoy, and we expect its decline to 8% in March.
The reason is that the vector has changed: the last two years, the news from Russia were mostly negative. Now the relations between Russia, the USA and the EU improved on the background of cooperation between Russia and France in Syria. Investors do not exclude that in 2016, sanctions may be weakened — if not new shocks. Risks associated with Russia has declined, so, we can expect inflows of capital into the Russian market — foreign investors are interested in Russian bonds because of their high yield. They also invested in stocks of Russian companies: financial flows is always flowing to where the market is undervalued.
Russian bonds are the most profitable in the world, not counting the Brazilian. How do you think I’ll choose: Swiss bonds with a yield of -0.3% or Russian, which, according to forecasts by Credit Suisse, in 2016 will bring on 8-9,5%? The answer is obvious. Now is especially a good time to buy ten-year bonds: this will permanently fix a good bet, given the low bond yields in Europe and other emerging markets. Next year the Central Bank will likely lower its key interest rate by 2-3%, and therefore, the yield of securities will go down.
To buy the Euro too early, it will fall. In the next 3-6 months the US will slowly raise the rate by a total of 1.2–1.25 per cent. Based on recent data from the United States — the weakening in consumer activity and to keep inflation at near-zero levels, the fed is too early to raise rates in March, but the potential increase may occur in the third quarter. Europe nothing to respond with — the ECB and so depressed due to weak economic growth, respectively, it will have to cut rates in March, to pursue a more aggressive policy of quantitative easing, highlighting more than 60 billion euros a month, expanding the number of asset classes and introducing a programme to encourage lending. All this will lead to a further weakening of the Euro. In the second quarter of 2016 we will see it reduced to 1.05 to the dollar and consolidation at this level.
Summary: the recent weakening of the dollar is a good opportunity to buy it. Safely buy bonds, buy EUR it is better to wait.