AFP
Energy-rich Russia’s currency yesterday extended its record slide and the government lowered its crucial oil price forecast in the wake of Opec’s decision to leave its output target unchanged.
After falling of more than 3% on Thursday the rouble shed another 2% and stand near the 49.60 mark in late afternoon trading on the Moscow Exchange.
It also gave up 2% and was valued at almost 61.85 against the euro—also a historic low.
The dollar-denominated half of the Moscow Exchange was recording a three% decline and scraping levels last seen in 2009. But its rouble counterpart was holding near year-to-date highs.
The beleaguered currency has been trying to find its footing ever since the Opec cartel decided on Thursday evening not to cut back production to support oil prices that have fallen by a third since June.
The value of energy on international markets is critical here because Russia—eager to limit borrowings at a time of extreme tensions with the West—will generate a whopping 52% of its 2014 revenues from oil and gas sales.
But the global energy glut and corresponding price collapse has contributed to the weakening of the rouble, which has lost around a third of its value against the dollar since the start of the year.
Such falls are especially sensitive to Russians who saw their rouble savings wiped with the collapse of communism in the 1990s—an era when the Kremlin’s approval rating at one point dipped below five%.
The rouble’s depreciation this year has also been fed by stiff sanctions imposed by the US and the European Union over Russia’s intervention in ex-Soviet Ukraine.
“The rouble’s decline will remain steady and stable,” FBK Strategic Analysis Institute chief Igor Nikolayev warned.
Russia’s growth is likely to flatline this year and contract in 2015 – a malaise attributed to President Vladimir Putin’s failure to improve market conditions and develop industries that could ease the budget’s dependence on oil.
The 2014 state spending plan is based on an average oil price of $93 a barrel.
But Economy Minister Alexei Ulyukayev admitted yesterday that the 2015 draft will have to be revised to account for the lower Brent crude price that stood at $72.65 yesterday afternoon.
“There is a strong probability that it will be closer to $80 a barrel,” Ulyukayev told reporters.
“This situation once against confirms our position that Russia’s budget policies must be adapted to new oil prices,” Maxim Oreshkin of the finance ministry’s strategic planning department added.
Russia’s most powerful oil executives were also entering the winter holiday season in a sour mood.
The head of state crude giant Rosneft cautioned that prices may even approach levels last seen during the 2008-2009 global financial crisis—a 12-month span that saw Russia’s growth shrink by nearly 10% and the banking sector require billions of dollars in assistance.
Lukoil private oil firm vice president Leonid Fedun said the joint effect of falling prices and Western sanctions will probably see Russia’s oil production drop from its current peak of about 525mn tonnes to 490mn tonnes within five years.
“The second, pessimistic, scenario is playing out,” Fedun told the Financial Times.
“So our forecast is oil production will decrease. But this decrease will not be dramatic, it will be more similar to what is happening in the North Sea.”
Meanwhile bonds were also sold off, with dollar debt spreads over US Treasuries at three-year highs and local 10-year yields surging to levels last seen in December 2011 .
“The market reaction is very conventional. We see divergence between the winning countries over the decline of oil prices and the losing countries,” HSBC strategist Murat Toprak said.
“The rouble has overshot - but if the oil price keeps going lower like that, this momentum may continue.”
Three-month forwards meanwhile imply a 10% depreciation in oil-rich Kazakhstan’s tenge.
In Nigeria, the naira lost 1.3% and dollar bonds fell, just like in Angola .
Earlier, Malaysia’s ringgit hit five-year lows, forcing the central bank to step in.
Societe Generale advised buying Turkish lira versus rouble as a proxy for oil.
