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Oil’s Lessening Impact on the Russian Economy and the Ruble: A Review

Tuesday, January 4, 2022
Oil’s Lessening Impact on the Russian Economy and the Ruble: A Review © Reuters.

by Yana Shebalina

Investing.com - Before the beginning of 2014, and the introduction of the first powerful sanctions against Russia due to the situation in Ukraine, almost no one thought about the correlation between the ruble and oil prices. But after the outbreak of the crisis, the correlation between the indicators became evident; in recent years, the cost of oil has directly affected the Russian budget.

And although the domestic economy is trying to move away from oil and gas dependence, it still remains in that holding pattern. However, earlier this year the experts of the Accounts Chamber of the Russian Federation said that the budget’s dependence on oil prices is starting to decrease. In the digest Economic Monitoring, prepared by the Accounts Chamber’s Department for Audit of Economic Development, the experts wrote that over the years, the correlation coefficient between the oil price and the dollar exchange rate has decreased from -0.91 in 2016 to -0.61 in 2020.

The Accounts Chamber explained that the drop in the index was recorded after the introduction of a floating ruble exchange rate, the Central Bank's transition to an inflation targeting policy, and the application of the budget rule. Thus, in 2014-2017, when oil prices moved from $112 to $24 per barrel, an absolute change of more than 3.6 times, the fluctuation of the ruble against the dollar was from 33 to 84 rubles, or 1.5 times.

At the same time, for the period from January 2018, when the budget rule came into effect, to February 2020, when oil quotations changed in the range from $85 to $48 per barrel, or about 80%, the fluctuation of the ruble against the dollar was in a relatively narrow range of 56 to 70 rubles, or 25%.

As a result, the JV analysts concluded that oil prices continue to affect the ruble, but there are other, more important influences. They include the reduction of Russia's current account balance of payments and external geopolitical risks, including the constant threat of new sanctions.

Andrey Kochetkov, an analyst at Otkritie Broker, says that the ruble is one of the most undervalued currencies in the world, and it is not because of the high price of oil, but because of strong fundamentals. Russia has a trade surplus, a current account surplus and a very small external debt.

"We are used to oil costing 3,000-3,500 rubles per barrel. In the last few years, however, the ruble exchange rate has ceased to correlate with the price of oil. The budget rule is partly to blame for this. In fact, the high price of oil began to have a negative impact on the ruble exchange rate. The higher the oil prices, the more funds are spent by the Ministry of Finance for purchasing foreign currency, which puts pressure on the ruble," says Kochetkov.

According to the data of the end of October 2021, despite the implementation of the budget rule, the correlation between the dynamics of the black gold and the ruble reached a record value since the second half of 2020 at 50%. Vladimir Bragin, head of research at Alfa Capital Asset Management, predicts that the ruble exchange rate will continue to be influenced by oil price movements in 2022, in addition to the fundamental factors. In addition, it will be affected by sanctions and geopolitical risks.

Mr. Bragin concluded that it is fundamentally unimportant for the ruble whether oil will cost $60 or $100 per barrel in 2022. According to him, the only difference will be the speed of accumulation of foreign exchange reserves. That's why, the analyst added, if we take the oil price as related to the ruble, we will do it only as an indicator of the general situation in the economy and the markets.

Read also: After a Year of Embargoes & Rising Costs, Brazilian Meat Producers Set to Rebound

See our full 2022 outlook series here.

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26-01-2022 10:14:38 (UTC+7)

EUR/USD

1.1287

-0.0012 (-0.11%)

Summary

Neutral

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EUR/USD

1.1287

-0.0012 (-0.11%)

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Neutral

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GBP/USD

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USD/JPY

114.36

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AUD/USD

0.7160

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USD/CAD

1.2634

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EUR/JPY

129.07

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EUR/CHF

1.0387

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23.867

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Copper Futures

4.4988

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Crude Oil WTI Futures

87.10

+1.50 (+1.75%)

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Brent Oil Futures

88.68

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Neutral

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Natural Gas Futures

4.123

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US Coffee C Futures

239.48

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Euro Stoxx 50

4,173.05

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S&P 500

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Hang Seng

24,289.90

+46.29 (+0.19%)

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↑ Buy

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US Small Cap 2000

2,037.60

+32.80 (+1.64%)

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Neutral

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IBEX 35

8,649.24

+169.74 (+2.00%)

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67.590

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Bayer AG NA

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Allianz SE VNA O.N.

224.95

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Adidas AG

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Deutsche Lufthansa AG

7.045

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 EUR/USD1.1287Neutral
 GBP/USD1.3499↑ Sell
 USD/JPY114.36Neutral
 AUD/USD0.7160↑ Sell
 USD/CAD1.2634↑ Buy
 EUR/JPY129.07↑ Buy
 EUR/CHF1.0387Buy
 Gold1,835.95↑ Buy
 Silver23.867↑ Sell
 Copper4.4988↑ Sell
 Crude Oil WTI87.10Neutral
 Brent Oil88.68Neutral
 Natural Gas4.123Neutral
 US Coffee C239.48↑ Buy
 Euro Stoxx 504,173.05Neutral
 S&P 5004,426.28Sell
 DAX15,482.75Neutral
 FTSE 1007,500.45↑ Sell
 Hang Seng24,289.90↑ Buy
 Small Cap 20002,037.60Neutral
 IBEX 358,649.24↑ Sell
 BASF67.590↑ Sell
 Bayer51.58Sell
 Allianz224.95Sell
 Adidas245.15↑ Sell
 Lufthansa7.045↑ Sell
 Siemens AG141.84↑ Sell
 Deutsche Bank AG11.437↑ Sell
Mua/Bán 1 chỉ SJC
# So hôm qua # Chênh TG
SJC Eximbank6,190/ 6,240
(-5/ -5) # 1,175
SJC HCM6,180/ 6,245
(-10/ -10) # 1,179
SJC Hanoi6,180/ 6,247
(-10/ -10) # 1,181
SJC Danang6,180/ 6,247
(-10/ -10) # 1,181
SJC Nhatrang6,180/ 6,247
(-10/ -10) # 1,181
SJC Cantho6,180/ 6,247
(-10/ -10) # 1,181
Cập nhật 26-01-2022 10:14:40
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$1,836.83-12.91-0.70%
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ʘ Giá bán lẻ xăng dầu
Sản phẩmVùng 1Vùng 2
RON 95-IV2486025350
RON 95-II,III
E5 RON 92-II2359024060
DO 0.05S1890019270
DO 0,001S-V1925019630
Dầu hỏa1779018140
ↂ Giá dầu thô thế giới
WTI$87.05-0.17-0.20%
Brent$89.70-0.11-0.12%
$ Tỷ giá Vietcombank
Ngoại tệMua vàoBán ra
USD22.460,0022.770,00
EUR24.918,8126.315,80
GBP29.789,2431.061,45
JPY192,82204,12
KRW16,3519,92
Cập nhật lúc 18:54:49 26/01/2022
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