The Central Bank attributed the depreciation of the ruble against the dollar and the euro to the decline in oil prices. At the same time, the Central Bank noted that the exchange rate of the Russian currency remained in the same range, where it “floated at the end of May this year.”
“There is a deterioration in external conditions, there is a decrease in oil prices. This is a very important reason for the exchange rate to weaken somewhat, [однако] fluctuates in a range observed since about the end of May of this year”,
– said Central Bank Deputy Governor Alexei Zabotkin interview RBC.
He noted that the weakening of the ruble will affect the rise in prices – each 10% movement in the exchange rate will affect inflation by about 0.5% – 0.6%, which will “extend for 6 to 12 months over time”. The regulator’s representative stressed that “the disinflationary contribution of the ruble’s strengthening, which occurred in the spring and the second half of summer, has so far been largely exhausted.”
On December 23, Finance Minister Anton Siluanov told reporters that the new weakening of the ruble was mainly due to an increase in imports into the country. According to Siluanov, restrictions on Russian oil only affect market participants morally. Also answering a question about the reasons for the depreciation of the Russian currency, he said that “the rate of the ruble is fluctuating.”
The decline of the ruble against the dollar and the euro began in December and intensified in the middle of the month. Between 12 and 16 December, the ruble fell from 62.8 to 64.65 against the dollar and from 66.37 to 69.1 against the euro. Since December 19, the decline has accelerated – the dollar was traded at 65 and 67 rubles. Already on the 21st, the dollar costs 70 rubles, and the euro – 75. Until December 26, the rate is set at 68 rubles. per dollar and 72 rubles. for the euro.
The price of Brent oil has dropped from $90 to $84, a loss of about $4 since the beginning of December. At the same time, the Russian brand Urals, which was sold at a discount after the start of Western sanctions, has an average cost of $ 57.49, according to the Ministry of Finance. It cost $71.1 in November.
Dmitry Babin, stockbroker of the financial holding BCS Mir Investments, previously told socialbites.ca that December is traditionally the worst month for the ruble, because the demand for foreign currencies increases before the New Year.
In an interview with Lenta.ru, Investment Director of Otkritie Management Company, Vitaly Isakov, suggested that Russian oil prices could rise soon, as demand will continue over the next few decades. “At the same time, the volume of oil supply may decline and insufficient investment in future fuel production may play a role in this process,” he said.
In addition, Isakov concluded that the cost of Russian oil could rise if “the sale of oil from US strategic reserves and the relaxation of covid restrictions in China” cease.
Government hopes
On December 23, Deputy Prime Minister of the Russian Federation Alexander Novak said that he expects an increase in the prices of petroleum products in Europe after the embargo on Russian oil came into effect. He then noted that the Russian Federation, in response to the EU embargo, plans to ban the supply of oil and petroleum products to countries that will require ceiling price compliance in contracts.
He noted that in connection with the new sanctions conditions, the Russian Federation will redirect supplies to the countries of the Asia-Pacific region, Africa and Latin America.
The EU embargo on Russia’s oil supply went into effect on 5 December. From that day on, the European Union officially stopped the importation of Russian oil by sea. In addition, the G7 countries and Australia refused to transport and insure Russian oil at a price of more than $60 per barrel. The embargo on the import of Russian petroleum products in Europe will come into effect on February 5. On December 26-27, according to Russian President Vladimir Putin, a decree should be issued on retaliatory measures up to the ceiling of Russian oil prices.
In addition, Novak believes that world oil prices will rise to $70-100 per barrel in 2023. However, he noted that sharp jumps are possible.
“The price today reflects the real situation, recently it was $100, it dropped to $70. This volatility exists between $70 and $100. I think in this range, there will most likely be prices next year”
he suggested.
According to him, the actions of European countries that support sanctions on Russian energy supplies are “populist in nature” and, among other things, “intervention in market instruments” can interfere with market pricing. He also suggested the emergence of local oil shortages in individual markets.
On Dec. 26, Novak said the discount on Russian oil had increased last month due to longer export routes, but the price would recover soon after supply chains stabilized.
“Of course the routes are getting longer, so the discount has become higher than it was a month ago. Last time it took about four months to stabilize new supply chains, this time it will be more or less the same,” Novak told TASS.
On December 25, the head of the Ministry of Finance, Siluanov, in an interview with the Asharq News TV channel, noted that despite the sanctions, price restrictions and market fluctuations, the obligations under the Russian budget will be 100% fulfilled. But according to him, if the price of oil falls below $70 a barrel next year, the Ministry of Finance will not replenish the National Wealth Fund (NWF). He noted that if the cost of oil is lower than what is included in the budget, the government allows additional borrowing from the market or the use of NWF resources.