To wait until June: what will happen to oil and the ruble before the next meeting of OPEC


As oil and the ruble reacted to the failure of the negotiations in Doha?

On Monday, April 18, after the opening of trading on the Moscow exchange the dollar rose more than two dollars to 68.8 rubles, the Russian currency weakened amid falling oil prices: after the failure of negotiations to freeze production in Doha oil on the London stock exchange fell almost 7% from $43,1 to $40,16 per barrel.

On this background decrease in quotations of the largest Russian oil companies. On the Moscow stock exchange capitalization of “Rosneft” at 17.00. MSK decreased by 2.8%, the cost of LUKOIL fell by 3.38% of, ordinary shares of “Surgutneftegaz” – on 3,4%. The total cost of the seven largest Russian oil companies decreased by about 250 billion rubles (MICEX index at 17.00. MSK fell by 1.98%).

Oil and the ruble after a steep drop in early trading began to restore the position: the price of Brent crude by 09:00 Moscow time has risen to $41,23 (minus 3.78 per cent to close on Friday), the dollar on the Moscow stock exchange fell below 68 rubles a couple of hours after the start of trading.

18.00. GMT the price of Brent was $42,19 per barrel (-1,54% to previous auction), the dollar on the Moscow exchange traded at 66,63 rubles 18 kopecks more expensive Friday.

The reaction of the foreign exchange market repeated the dynamics of oil: a sharp jump and stop, says the head of trading IR “Aton” Yaroslav Podsevatkin. In his opinion, the results of the meeting in Doha were offset by strike action in Kuwait, which resulted in the production of the country decreased by about 1.6 million barrels. “It’s practically the entire surplus, which was on the market. For this reason, oil remains above $40 per barrel. If it hadn’t been for the strike, probably the prices would go below this level”, — said Podsevatkin. “If the Doha negotiations fail, the price of Brent could fall to $35 per barrel or lower, and the dollar will be worth 70-75 rubles,” predicted at the end of last week analysts at Sberbank CIB.

Will the oil market new fall?

The idea about the freezing of oil production at the level of January 2016, was born in mid-February at a meeting in which participated Russia, Saudi Arabia, Qatar and Venezuela. Limiting the offer on the market, they are expected to support oil prices, which since June 2014 until the end of January 2016 fell four times – from $USD 114.9 to $28 per barrel. Only on the expectation that global manufacturers will agree in Doha on limitation of production, oil has risen 55%, writes in his review, the analyst FG BCS mark Bradford. Now this speculative factor has lost its power. “A new source of hope – the June OPEC meeting: markets expect that in the event of a significant decline in oil prices by the time the cartel still have to act,” he says.

This week the market turmoil continues, a possible new failure, but by the end of the year worth waiting for the prices to $50 a barrel, predicts analyst “URALSIB capital” Alexei Kokin. This is due to the gradual decrease in oil production in countries outside OPEC, primarily shale oil in the U.S., he says. Peak shale oil production the United States reached in may 2015 5.64 million Barr./day. In April 2016, this figure rose to 4.95 million barrels./day. Portfolio Manager Asset Management GL Sergey Vakhrameev agrees that the game of speculators for a fall would not last more than a week. But his prediction of oil prices is more pessimistic: the end of the year it will cost $30-40 per barrel, based on current fundamentals.

Until the next OPEC conference (scheduled for June 2) investors will focus on such factors as the oversupply in the global oil market, the prospects of increased demand in 2016, the level of inventory and the dynamics of oil production in the U.S., as well as fluctuations in the dollar, writing in his review of Sberbank CIB analysts Dmitriy Kolomytsyn and Iskander Lutsk.

Normal for the industry and the formation of the budget now would be price at $40-60 per barrel, said the Agency TASS, the Minister of energy Alexander Novak.

What will happen to the ruble?

In the medium term – until the next OPEC summit in June – the dollar will be worth 65-70 rubles, says Yaroslav Podsevatkin from Aton. At this level, according to the trader, the ruble will support oil price in the range of $40-45 per barrel. “This is the most fair price now. Above $45-50 per barrel the price of oil will not go, because then activates the production of shale oil in the U.S.,” he explains.

Unsuccessful negotiations in Doha will not change the positive mood of investors, says the analyst of PSB Alexey Egorov. “Macroeconomic data are improving, so everyone is expecting the growth in oil demand. Quotes will continue to test higher levels in anticipation of further negotiations exporting countries,” he said. Prices will continue to rise, agree chief expert of Center for economic forecasting Gazprombank Yegor Susin. “It will be due to increased demand and the continued decline in oil production in the U.S.,” he believes oil could rise to $50 per barrel, the dollar will drop to between 60 and 62 rubles.

In addition to oil prices, the ruble maintains a positive trade balance. According to the managing Director for investments “TKB BNP Paribas investment partners” Vladimir Chuprova, now the ruble is trading a little better than they should have based on oil prices, thanks to good balance and tight monetary policy. According to him, if not for these factors, at the current oil price the dollar was worth 68 rubles would not, as now, but 69-70 rbl.

The ruble will support the expectations and reduce inflation and interest rates, said Chuprov. According to Rosstat, inflation in annual terms in March 2016 fell to 7.3% from 8.1% in February and 9.8% in January.

In addition, in the coming days to support the ruble will be exporters who will sell a currency in anticipation of tax payments, Sberbank CIB analysts in their review: according to their estimates, in the coming days, the exporters must sell foreign currency in the amount of about $4 billion.

What happened in Doha?

On Sunday in the Qatari capital Doha meeting of Ministers of 18 countries, which account for about half of world oil production – 11 of the 13 members of OPEC (except for Iran and Libya), as well as Russia, Kazakhstan, Azerbaijan, Bahrain, Colombia, Mexico and Oman. It was planned to sign an agreement to freeze oil production at the level of January 2016 for six months. But after a day of intense negotiations, the Ministers left with nothing.

Iran, who returned to the international oil market only this year after the lifting of sanctions, had said from the beginning that he did not intend to restrain the prey until it reaches desanctions level to 4 million barrels a day. Now, according to National Iranian Oil, it is about 3.5 million barrels. Against the exceptions made by the largest member of OPEC – Saudi Arabia and its neighbors in the Persian Gulf. Without Iran they refused to sign the agreement.

For the Russian side it was a complete surprise. “We had expectations that the countries that came, came not in vain, and to negotiate a freeze,” said energy Minister Alexander Novak in interview to TV channel “Russia 24” on the results of the negotiations in Doha.

The closest OPEC summit, which will discuss freezing the production will take place in June in Vienna. For the remaining countries cartel should hold consultations on this issue. If we reach a common position, Russia is ready to join it, said Novak.