The oil price rebound that followed Russian President Putin’s announcement that the country is ready to join OPEC in output freeze negotiations pushed up the ruble substantially enough to make it more attractive to forex investors and increase Russia’s appeal as an investment destination as a whole.
According to Goldman Sachs, the Russian currency will continue to climb thanks to oil prices, but also thanks to plans by the central bank to further cut interest rates. Bloomberg quoted the bank’s governor Elvira Nabiullina as saying that the lower interest rates will strengthen the national currency and slow down inflation by making imports cheaper. This has been a major problem ever since the slide in oil prices began and Western sanctions for the annexation of Crimea kicked in.
The ruble first spiked after OPEC announced at the end of September it was going to agree to a production cut at its 30 November meeting. The announcement took the market by surprise, and then a couple of weeks later, Putin officially announced Russia’s readiness to join the talks, sending Brent and WTI above US$50 a barrel.
The price rise in crude has benefited Russia more than other producers that count as emerging markets, according to Bloomberg, and has made it more attractive for investors choosing between Russia’s borrowing rates and rates close to zero in developed markets. This is welcome news for Moscow, whose access to international financial markets has been curbed as a result of the sanctions.
The oil price rebound is far from sustainable, however, as it depends entirely on news from OPEC. Yesterday, for example, Brent and WTI fell after the cartel announced the duration of the freeze was not set. OPEC said, as quoted by Reuters, that it was “trying to reach a global agreement to cap production for at least six months,” refueling already rampant doubts about the effectiveness of a freeze. Six months may well turn out to be too short a time to rebalance the market, even if the agreement is reached.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.