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Now not pagerwesi: Russia is losing expensive oil

Теперь не пожируешь: Россия теряет дорогую нефть

In the oil market continues to collapse, despite the optimism about a possible trade agreement between the US and China. Falling prices for “black gold” began in October, but by November accelerated. Thursday, 1 November, a barrel of Brent crude was worth only 73.6 per dollar, losing over a day is 4%. This is the lowest price since August 20. Recall that in September Brent reached the level of 80 dollars per barrel.

Interestingly, the Russian ruble almost did not react to this fall, not losing in price, while a month earlier as the currency jumped above 70 per dollar, even at much more expensive oil. Experts explain that such stability contributes to the rectification of past errors of financial leadership — the suspension of purchases of foreign currency on the open market in the framework of fiscal rules.

Returning to oil, one particular cause of its fall not. According to analysts, is a consequence of the General crisis on the world stock markets. In October the total losses in the equity markets of the United States, Asia and Europe due to large-scale sales has exceeded five trillion euros. It is believed that this is the biggest collapse since the Lehman Brothers collapse in 2008. The American index S&P 500 ended October with a fall of 8% is the worst result over the past ten years, Nasdaq has decreased by 9.2%, setting a record since November 2008.

However, the decline in oil prices is due not only to it. For example, communication US Department of energy on oil reserves in the country, made on 31 October, showed the volume by a million barrels less than was expected by analysts. This is usually enough to ensure that the prices went up, but that didn’t happen.

Iranian sanctions, which provoked the growth of prices seem too have less to disturb the market. On the one hand, the EU and several countries have already announced that they are working on the establishment of a mechanism to bypass them. On the other, in the American mass media there was information that the White house is ready to ease restrictions.

Another factor, which was supposed to lead to higher prices — news that U.S. President Donald trump instructed to prepare a new trade agreement with China, and to reconcile the parties. Prior to that, the trade war between Beijing and Washington was named one of the reasons for the falling stock markets. The number of media does not exclude that some of the major players in the market began to fix profit, or has some insider information.

But as explained by the “SP” analyst “Discovery Broker” Timur Nigmatullin, the reasons for the fall in oil prices is more complex and global. And unless there is some geopolitical crisis, they will continue to decline in the medium term. And, then, the Russian financial authorities will have to say goodbye to the record plans for rapid filling of the reserve Fund up to 4% of GDP, after which they were going to spend oil revenues on various national income, and not to defer “in a jug”. Recall that the budget rule all the windfall from oil over $ 40 a barrel, headed to the national welfare Fund, and did not go into the economy.

— Oil prices fundamentally depend on what the balance of supply and demand in the market, — says Timur Nigmatullin. — If the proposal is more demand, prices fall because of growing inventory and there is excess. If the market deficit and less oil than they consume, quotes grow.

The last four quarters, the market had a shortage of oil, it produced less than it consumed. This was partly due to the high themes of growth in the world economy, including through the United States and China. For every one percent of global GDP account for a certain percentage of raw material consumption. Consumption grew at such a pace that it was unable to offset even the increase of oil production in the United States. The role was played by the fall of oil production in countries such as Venezuela.

Now the two-year period of deficiency comes to an end. The main players who monitor the market — and the us Department of energy and OPEC and the International energy Agency expects that in the first or second quarter of 2019 will be excess supply. Accordingly, the players gradually begin to lay this factor in the price, so from the beginning of October she reduced.

“SP”: — That is a decrease in oil prices inevitable?

— Possible speculative factors negate this reduction. For example, the final imposition of sanctions against Iran can change the situation, although it is not entirely clear how they will be strict. In addition, can be followed by any action on the part of OPEC may again cut production.

But the basic inertial scenario without considering these factors is that oil prices will continue to decline. The price of Brent in the area of $ 65 a barrel looks unrealistic.

“SP”: — OPEC plus, which includes Russia, the recent months have decided on a gradual build-up of oil production. If now they again will reduce, it will lead to higher prices?

— There are a lot of nuances. I don’t think OPEC plus can quickly and effectively influence the market. You can’t just increase production twice, and then just as quickly reduce. This is a complex process, which is not so easy to redirect. In addition, OPEC, even without acceding countries is very heterogeneous. It includes Saudi Arabia, and that of Venezuela, which has many economic and political problems. The cartel cannot effectively regulate production for a short period of time. This can happen on the horizon year-a year and a half, but press the gas pedal or brake in a moment is unrealistic and one that will not do. Oversupply will put pressure on quotes.

“SP”: — What new drop in oil prices mean for the Russian economy?

— You need to understand that $ 65 per barrel is a very good level for the Russian economy. It is significantly above the rates laid down in the budget rule. And this, remember, is only 40 dollars per barrel. If the Ministry of Finance will return to the practice of buying foreign currency from the market pursuant to the budgetary rules, the economy in General will not notice the fall in oil prices if it will stay above 40. The only thing that reserve funds will be filled slower. From the point of view of our economy is now much more important than sanctions, which the United States may send against us in November than the decline in oil prices.

“SP”: — If the economy as a whole will not feel such a decrease, what can we say about the ruble? More recently, the ruble was in a fever and at higher oil? Or is he not tied to the “black gold”?

— No, the ruble is still tied to oil. Just after the August events it is possible to note some nuances. Then he introduced another package of sanctions the United States for “business Skrypalia” and announced new restrictions, including against the Russian financial system. After that, the Central Bank refused to fulfill the transaction of the Ministry of Finance for buying currency in the market to the reserve Fund. Currency take directly from the reserves.

It turns out that to freeze the budget rule, we lived in fact, when the price of oil in 40 dollars for barrel, whatever it was actually. Now we live in a market price, at least theoretically. Because the exchange rate comes into line with market price gradually. But somewhere in the middle of the road, he met with the falling price of oil, so the ruble, on the one hand, not strengthened, stronger, and with another — began to fall after the decline of quotations.

Head of analytical Department of Grand Capital Sergey Kozlovsky also said that the slowdown in global growth will inevitably lead to a drop in oil prices.

— The price of crude oil increased the drop amid rising fears in the market that crude oil supply will again exceed demand due to the slowdown in the global economy. Additional pressure on the market by the weekly report from the U.S. Department of energy, under which commercial oil reserves over the past seven days has increased by 3.22 million barrels per day.

The prospects of a slowdown in the world economy is particularly relevant amid the ongoing trade wars. Risk appetite in the market reduced for the third consecutive month, commodity futures get rid of the so-called speculative surcharges, which can range from 5% to 20% of the price of the asset.

As for the future, there remains a level of 70 dollars per barrel. In our view, at least until the end of November in this area will form a price base.

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