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The oil factor: why the euro exceeded 83 rubles for the first time since April 2022

Photo by Andrik Langfield on Unsplash

On Wednesday, March 22, the Russian currency is getting cheaper on the Moscow Stock Exchange. During the trading the euro rose by 0.7% and at a certain point reached 83.18 rubles. The last time a similar value could be seen at the end of April 2022.

The dollar rose by 0.6% – up to Br77.1. In turn, the yuan rose by 0.2% – to 11.18 rubles.

The national currency has begun to weaken markedly against the European, U.S. and Chinese since mid-March. One of the main reasons for the observed dynamics was a sharp decline in world oil prices, says investment strategist of Aricapital Asset Management Sergei Suverov.

It should be noted that since the beginning of the month the price of primary oil of the benchmark brand Brent at the ICE in London has fallen by almost 10.6% and is now fluctuating near $75 per barrel. At the same time on March 20 quotations briefly fell to nearly $70, the lowest level since December 2021.

“The situation in the oil market has been overshadowed by negative news from the U.S. Investors fear that the banking crisis in the States will lead to a recession in the country and slow the global economy. In this case, the global demand for energy resources will fall, which is why oil is losing its price now,” Suverov explained in a commentary to .

Recall that in the first half of March it became known about the bankruptcy of three major U.S. banks – Silicon Valley Bank (SVB), Signature Bank and Silvergate Bank – with total assets of nearly $331 billion. Moreover, the first two of them were in the top 30 largest U.S. financial companies.

Although Washington assured that the banking system of the USA “remained safe” and promised to take measures to solve the crisis, news about the collapse of financial institutions triggered panic in the US stock market. The value of shares of a number of other U.S. banks fell sharply, and this was followed by a collapse of quotations in Europe. As a result, Credit Suisse, the second largest bank in Switzerland, was on the verge of bankruptcy.

According to experts, the problems of Western banks began against the background of a sharp tightening of monetary policy in the United States and Europe. Thus, back in 2022, to fight inflation, the U.S. Federal Reserve and the European Central Bank began to sharply raise their interest rates, although previously they kept them around zero. This, in turn, has made it difficult for businesses, which in recent years have become accustomed to cheap borrowed money.

“The current difficulties for banks signal that high rates are already beginning to undermine the imbalances of the financial system. In this regard, regulators will find it difficult to continue the fight against inflation by raising interest rates without harming the economy. Such risks to the global financial system and lead now to lower oil prices,” Igor Galaktionov, stock market expert at BCS World Investment, explained to .

Overall, according to the forecast of the International Energy Agency, in the first half of 2023 the supply of oil in the world will exceed demand. However, already in the second half of the year the market may have a deficit, analysts say. According to Sergey Suverov, this will be partly due to the actions of Russia and China.

The specialist asserts that the decision of Moscow to voluntarily cut the oil production by 500 thousand barrels per day will last till July, which will cause the decrease of the global energy resources supply. At the same time, China is now lifting covid restrictions and starting to consume more fuel, which could support global demand for hydrocarbons. These factors, Suverov believes, could lead to a recovery in oil prices.

“So far, there is indeed a small surplus in the market. However, the situation could change if Russia steadily reduces production and the Chinese economy recovers quickly. As a result, oil prices may return to the range of $85-92 per barrel already in the second half of this year,” the interlocutor suggested.

According to Igor Galaktionov, partly the weakening of the ruble today is still prevented by budget rule.Under this initiative, the Ministry of Finance sells foreign currency from the National Welfare Fund to cover the expenses of the Treasury. Due to the actions of the Ministry of Finance, the supply of foreign currencies in the market additionally increases, which provides some support to the ruble, the expert believes.

“Of course, the current depreciation of the ruble is partially compensated by the budget rule. However, the mechanism is designed only to smooth out exchange rate fluctuations, while the dependence of the national currency on trade flows remains significant,” Galaktionov added.

Nevertheless, in case oil prices go up, the foreign currency inflow to Russia from raw material exports will have to increase and the ruble will be able to strengthen again. Oleg Syrovatkin, a leading analyst at the Global Research Department of Otkritie Investments, shared this opinion with .

He predicts that until then, the dollar will continue to move in the 75-80ruble range. Igor Galaktionov has a similar prediction. According to him, the euro will stay within the 82-87 ruble range, and the yuan – near 11-11.5 rubles.

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