The decline in oil prices contributed to the negative statistics on the economy of China, which ranks third in the world after the USA and Europe in fuel consumption. Thus, industrial production in China increased by 3.7% in July compared to the same month of the previous year. The forecast assumed production growth of 4.4%. After the statistics were released, oil prices began to fall in the early hours of Tuesday evening, with prices falling 1.5%. On Wednesday, they lost more than 0.7% in trading. As of 15.08 Moscow time, the cost of one barrel of Brent had rebounded the decline, bids exceeded $85.
“Stock speculators, of course, played with the negative statistics on production in China and oil prices fell. However, these fluctuations cannot be called alarming. If the cost of a barrel of oil drops to $ 60-70, it would be too much, Igor Yushkov, one of the leading analysts of the National Energy Security Fund, told Gazeta.ru.
According to Yushkov’s forecasts, the price of Brent per barrel in September will fluctuate in the range of 80-85 dollars.
BCS World Investment Senior Analyst Ronald Smith assumed that a barrel of Brent oil would cost around $85 in the fourth quarter (October-December) before returning to the $75-$80 per barrel range in 2024.
Sovcombank chief analyst Mikhail Vasiliev believes that in the third quarter the average price of Brent oil will be $ 82 per barrel, and the average price of Russian Ural oil $ 68 per barrel. He added that the Brent forecast for the fourth quarter is $77 per barrel, and $63 for the Urals.
According to the Russian Ministry of Finance, the average price of Russian Ural oil exceeded $ 70 per barrel from July 15 to August 15.
What will oil prices depend on?
“The US Federal Reserve System will most likely not raise the key interest rate and the parameters for oil production under the OPEC+ alliance have been announced before. Bids can fluctuate between $80 and $86 a barrel, but overall the most likely range is $80-85,” he said.
He explained that the economy slows when the US Federal Reserve raises the rate: businesses don’t get expensive loans, the industry doesn’t thrive. Also, there is less money in the economy and less money runs out in the stock market. Demand for commodities, including oil futures, is falling. Accordingly, it is getting cheaper, Yushkov summed up.
According to him, the level of oil prices in the fall will also largely depend on oil demand in China and the actions of Saudi Arabia along with other OPEC+ countries.
He explained that China is now more or less recovering from the coronavirus pandemic, with oil demand increasing. Stanislav Mitrakhovich, his colleague in the fund and a leading expert at the University of Finance under the Russian Government, says that the growth of the Chinese industry will continue, the volume of air travel will increase, and this factor could contribute to the rise in oil prices. The Federation agreed.
The main intrigue is whether the Saudis and other countries of the OPEC + alliance will extend the cut in oil production until October.
“First, Saudi Arabia announced that a voluntary reduction of oil production by 1 million barrels per day was accepted only for July, then extended to August and September. If oil stays above $85 per Brent barrel in September, Riyadh is likely to start increasing production volumes. “But OPEC+ quotas will likely stay at the same level,” he said.
Mitrahovich added that recession concerns in the West may also lower oil prices.
Rub for support
Vasilyev talked about how oil prices will affect the incomes of the Russians and the country as a whole.
“On the one hand, Russia’s oil export revenues are increasing due to rising oil prices and the depreciation of the ruble. On the other hand, the reduction in oil production under the OPEC+ agreement reduces Russia’s revenues. The expert will reduce the oil supply to the world market by 500,000 barrels per day in August and 300,000 barrels per day in September (an increase of 200,000 barrels per day compared to August).
Vasilyev estimates that Russia’s crude oil exports will be around $7.1 billion in September, as in August, with China and India continuing to be the main destinations.
In turn, Vasiliev stated that exports of oil and petroleum products will continue to be one of the main suppliers of foreign exchange to the country.
From the fall, the ruble can receive support from oil prices. The approximate lag between high oil prices and the supply of foreign currency from export revenues to the Russian foreign exchange market is two to three months. “Brent oil prices have stabilized above $80 a barrel in July, so a positive impact on the ruble is likely in September-October.”
Vasiliev expects the ruble to remain in the range of 90-100 rubles per dollar against the dollar in September. The analyst focuses on the average values for the dollar in September – 96 rubles, euro – 105 rubles, yuan – 13.2 rubles. Vasiliev said that in the basic scenario, the dollar would cost 93 rubles in the third quarter and 95 rubles in the fourth quarter.
“The flow of foreign exchange revenues appears to be a key support factor for the Russian ruble. “From an export perspective, however, one of the most important risks remains the volume of oil and gas exports – its decline will partially dampen the support of oil price growth,” said Natalia Lavrova, chief economist at BCS World. your investments.
Vasiliev believes that an investor who believes in rising oil prices can take a closer look at the stocks of oil companies.
A possible increase in oil prices may support the ruble. Therefore, conservative investors can also invest in reliable government bonds – federal loan bonds.
Vasilyev stated that OFZ yields are 10-11%.
Source: Gazeta
Ben Stock is a business analyst and writer for “Social Bites”. He offers insightful articles on the latest business news and developments, providing readers with a comprehensive understanding of the business world.