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The Russian rouble, heavily reliant on crude oil, has seen a significant drop in value against the dollar despite the recent rise in Brent, the international benchmark for oil. The currency lost about 2 percent on Monday alone, indicating a lack of correlation between oil prices and the rouble’s performance.
Russia, aiming to comply with Opec+ agreements, has committed to reducing its daily crude oil output by 500,000 barrels starting this month. This poses a challenge for the country, as it is eager to increase its crude oil exports.
Blaming western states for capping Russia’s Urals blend at $60 per barrel is not justified since the price has exceeded $73 in recent weeks. Indian buyers, in particular, are willing to pay a premium for Russian crude from key producers like Lukoil and Rosneft, as reported by the Financial Times.
In rouble terms, the international Urals price has surged by 60 percent since mid-June. Russia finds itself in a precarious position as it adheres to Opec+ commitments, longing for more export revenues and facing a dwindling current account surplus along with increasing arms imports. Consequently, inflation is expected to rise, potentially leading to a 20 percent year-on-year increase in producer price indices in the second half of the year according to Capital Economics.
As an inflation hedge, local share prices on the Moscow Exchange have skyrocketed. State-owned Rosneft’s stock, for instance, has risen by over 50 percent this year in rouble terms. Furthermore, even traditionally stable global energy shares have experienced significant growth, outperforming broader market benchmarks since the spring.
Despite the attractive opportunity for Russia to boost oil exports due to a weakened rouble, it is not sustainable in the long run, especially as Saudi Arabia reduces its own supply to support fellow Opec+ members.
The Lex team values your input. Please share your thoughts on the depreciation of the rouble in the comments section below.
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