The Russian currency has again reached historically weak levels, the second time since the outbreak of the war in Ukraine that it has crossed the 100 roubles per dollar barrier. The current declines appear to be driven mainly by two factors: the price of Urals crude oil, which has jumped above the USD 70 per barrel level, and declining production of petroleum products. According to OPEC analyses, it could fall by 5.9% year-on-year this year. The Central Bank of Russia is intervening to strengthen the rouble's quotations. Let us consider what the consequences of this might be.
Decline in Russian oil production part of OPEC+ plan
We have learned from the latest OPEC cartel report that the second and third quarters of this year are set to be the most difficult period for crude producers in recent years. The largest quarterly drop in production is expected to be 14.4% year-on-year, but by the end of 2024, production is planned to recover to 5.9% lower than before the outbreak. This could be a signal that Moscow is keeping its word on the promised reduction in supply, while cooperating with Saudi Arabia as OPEC leader. Major oil producers, including Russia, have already been cutting supplies since November to prevent price falls.
Source: OPEC
Oil extraction is of particular importance to the Russian economy, accounting for as much as 43% of exports. The fall in the value of the rouble should theoretically be related to market prices for energy raw materials.
What could this mean for the rouble?
Despite the recent strengthening of Russian Urals oil prices above the USD 70 per barrel level, we are not seeing this reflected in the strengthening of the rouble. This may be due to the fact that Russian export companies are not exchanging yuan or Indian rupees, among others, which keeps the ruble depreciating steadily. It is for this reason that we saw a higher-than-expected interest rate hike at the last meeting of the Central Bank of Russia, reaching a level of 12%. There are also opinions that the Russian government may force domestic exporters to sell foreign currency, which, combined with the central bank's actions and the rise in oil prices, may indeed lead to a significant strengthening of the rouble in the short term.
Source: Conotoxia MT5, XBRUSD, Daily
Source: Tradingview
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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