Barrel under $50: what will happen to oil prices and the ruble exchange rate

Why expensive oil?

On Thursday the price of Brent crude oil in London trading for the first time this year exceeded $50 per barrel. By 12:45 Moscow time its cost was $50,11 — 0.48% more than the closing price of the previous day.

The main reason for the growth in oil prices — decline in production due to various emergencies, says the analyst of “Renaissance Capital Ildar Davletshin: in Nigeria, production has fallen by more than 0.5 million barrels. a day, same can be said about Canada. To this must be added a supply disruption from Kuwait, Kurdistan, Venezuela and Libya, he enumerates.

This is also last week said in its report, investment Bank Goldman Sachs. Among the reasons for the shortage of oil analyst of the Bank called for increased demand in China and supply disruptions due to fires in Canada and attacks on pipelines in Nigeria in early may.

According to Goldman Sachs, the situation on the oil market finally approach the balance of supply and demand. In the first quarter of 2016 world production decreased to 96,43 million barrels. per day compared 97,23 million barrels. in the fourth quarter of 2015. In the second quarter, production will decrease even more — up to 95,63 million barrels. a day, analysts predict the Bank. The demand was higher than expected. In January-March, 2016 it dropped from 95,48 million barrels. to 95,07 million barrels, but in the second quarter will rise to 95.7 million barrels. and will continue to recover. Conclusion Goldman Sachs: in may, the market formed a deficit of oil that can persist throughout the second quarter to a level of 0.07 million barrels. per day.

What will happen to oil prices next?

By the end of 2016, oil prices could exceed $55 per barrel, заявил18 may primary owner of LUKOIL Vagit Alekperov in an interview to television channel “Russia 24”. “Most likely, the price of oil today will range between $45-55, and by the end of the year we can be witnesses to the fact that the price will exceed this figure”, — he said (quoted by TASS). The reason for the increase in oil prices, according to Alekperov, may be the underinvestment in the industry, which will lead to reduction of volumes of extraction and production.

“I think oil prices could rise about a month, maximum two, then production will recover and in Canada, and in Nigeria, says Davletshin. — By this time production in the United States will cease to fall and road season will come to an end”. The expert expects that because of these factors, the oil price could return to the values in the neighborhood of $40 per barrel.

Senior analyst at UBS Maxim Moshkov believes that oil prices will continue to rise due to production cuts in the world. Another argument in favour of this reduction of oil reserves in the USA on 4,2 million Barr. (to 537,1 million Barr.), announced this week, reminds Moshkov. In his opinion, the average price in 2016 will be $42,5 per barrel, but in the fourth quarter it will be about $49.

What will happen to the ruble?

The increase in the price of oil responded to the ruble. Thursday, may 26, at the opening of trading on the Moscow exchange the dollar fell below 65 rubles. the Euro fell to its lowest level this year — 72,68 RUB.

A further rise in oil prices will lead to the strengthening of the ruble, despite the seasonal factor — in the summer the ruble, as a rule, is weakening because of the demand for currency during the tourist season and reduce foreign currency earnings of exporters, said chief expert of Center for economic forecasting of Gazprombank Yegor Susin. He predicts that oil prices may strengthen to $55 per barrel in the short term and the dollar will cost 60-65 RUB But by the end of the year Susin expect $40-50 per barrel and 65 rubles per dollar.

The question is, will the $50 per barrel support level from which prices can go up, write in my review of Sberbank CIB analysts Tom Levinson and Iskander Lutsky. “To a large extent the rise in oil prices due to short-term supply disruptions, but if the fed will raise rates this summer, prices also could come under pressure,” they add. Concerns about an upcoming fed rate hike could slow the growth of the ruble caused by the increase in oil prices, analysts say: “However, the price is above $50 per barrel tells about the possible movement of the USD-the ruble to the mark 64,50”.

The risks to oil prices — a possible restoration of former levels of production of shale companies, weak data on the Chinese economy, the fed rate hike and the reduction in the rate of the Central Bank and significant payments on corporate foreign debt, lists the expert of “BCS Express” Ivan Kopeikin. “The only positive factor is that the ruble is a bit oversold in relation to oil prices, as he slightly reacted to the previous growth of oil prices. And hence, when falling oil prices, the weakening of the ruble will be modest,” he says. In the short term the dollar, according to analysts, can cost about 68 RUB.

Potential further strengthening of the ruble is limited, agrees
the analyst “URALSIB” Irina Lebedeva. If we exclude the impact of oil on the ruble, we see that he is weakened, she points out in this morning’s review: “In early November, when oil prices were close to current levels, the ruble against the dollar and the Euro was respectively 6% and 3% higher than now.” The combination of rising oil prices and moderate strengthening of the ruble should support revenue and reduce the expenditure of the Reserve Fund, she adds. “Negative news for the Russian currency, which will inhibit its growth can be attributed to the recent placement of sovereign Eurobonds, the yields on the new issue was surprisingly high,” — says Lebedev.

What will happen to the budget and expenditure?

Federal budget for 2016 were estimated based on oil prices of $50 per barrel. But this is about the average price of Russian Urals. For the first four months the average price, according to the Finance Ministry, amounted to $33,9 per barrel, that is to get to $50 for the year, oil should rise in price even more and stay consistently above $60 — the prospect is far from obvious. Russian Urals in April was trading at a discount of $1.6 to Brent, so long as she doesn’t even has crossed the psychological mark of $50.

Although the budget law has not been revised (the amendment to the budget was postponed from spring to autumn) and formally apply the original forecast parameters, including the $50 per barrel of Urals, de facto, the state lives by urethanea budget. In March—April the Ministry of economic development revised baseline forecast for the price of Urals for 2016, lowering it to $40 per barrel and the Ministry of Finance has prepared amendments to the budget based on $40. The amendments include a 10 percent sequestration of the so-called protected categories (that is, excluding spending on defense and security and social benefits). Still without formal approval, but the sequester has actually conducted, and the Ministry of Finance strictly “adheres” costs. In the first quarter of 2016, a reduction in the revenue and expenditure components of the budget amounted to about 20% in real terms (Ranepa calculations based on data of the Ministry of Finance). Reduction noticeable on most articles, including the defense and national economies, but with the exception of social spending, which increased by 0.2 p. p. of GDP (mastered advance).

The budget deficit in January—April amounted to 4.7% of GDP compared to the law laid down in the 3%. For the financing of the Treasury deficit in April for the first time this year involved Reserve Fund, taking it from 390 billion rubles, and just placed Eurobonds for $1,75 bln (since 2013). Intermediate growing deficit does not exclude the possibility of achievement of the planned 3% by the end of the year provided a favourable economic situation and the persistence of the government in achieving this goal,” write the analysts of “VTB Capital”. They believe that during the year dynamics of oil and gas revenues will gradually improve in the fourth quarter even possible growth yoy.

Presidential aide Andrei Belousov said today TASS that if the price of oil stabiliziruemost in the neighborhood of $40, from the national welfare Fund (NWF) can be “painlessly” to spend another 50-100 billion rubles for investment projects. Improving oil and gas revenues and increases the probability of politically sensitive doindeksatsii pensions, which depend on (prescribed in the law on the budget) from the budget performance in the first half of the year. This week Prime Minister Dmitry Medvedev during a trip to the Crimea, explained local resident: “We do not accept [indexing]. Just no money right now. Find the money, do indexing”.