Tuesday, November 18, 2014

Chris Weafer — What's Next for the Ruble?

The last time I wrote about the ruble outlook, in early October, I highlighted the oil price trend and the actions of the U.S. Federal Reserve Bank as being the two key drivers of where the currency might trade against the U.S. dollar until the end of the year. At that time the exchange rate of the ruble against the dollar was 40.1 and the price of a barrel of Brent crude was just over $84 per barrel.
Today the price of oil is only 50 cents per barrel lower, but the ruble has fallen by almost 20 percent. At one point last Friday morning the ruble traded at almost 49 against the dollar, at which level it was off 50 percent since the start of the year.
So what's gone wrong with the economics? The short answer is nothing. It is just that economics are now almost irrelevant. If economics were the only driver, then the ruble would still be trading not far off 40. That is technically the fair value of the currency based on where oil is currently trading and on the key macro indicators for the economy.
The Moscow Times
What's Next for the Ruble?
Chris Weafer, senior partner with Macro Advisory, a consultancy advising macro hedge funds and foreign companies looking at investment opportunities in Russia


Matt Franko said...

The oils are different you have to look at the price of Russian oil in Euros and you have to look at more than the price of Russian oil in Europe you have to examine the prices of a broader basket of commodities/products in both jurisdictions....


"Brent Blend
Brent Blend is a light, sweet North Sea crude with an API gravity of approximately 38 and a sulfur content of approximately 0.4%. Most Brent Blend is refined in Northwestern Europe, but significant volumes are also shipped to the US and Mediterranean countries.
Brent Blend is used for pricing around two-thirds of the crude traded internationally. Rolling price assessments are based on physical Brent-Forties-Oseberg crude oil cargoes loading not less than 10 days ahead and loaded free on board at the named port of shipment (‘Brent Dated).

Russian Export Blend
Russian Export Blend, the Russian benchmark crude, is a mixture of several crude grades used domestically or sent for export. Russian Export Blend is a medium, sour crude oil with an API gravity of approximately 32 and a sulfur content of approximately 1.2%. Its spot price is reported at Augusta, Italy, and Rotterdam, the Netherlands, which act as the two primary delivery points."

Matt Franko said...

Its complicated.

So if its too complicated we say things like this guy here:

"It is just that economics are now almost irrelevant."


This is like when the morons say: "do you believe those numbers!!"

Tom Hickey said...

He is just saying that on the economic merits, the ruble would be trading at X and given the discount owing to politics the ruble is trading at X minus discount.

The question is how long the discount will last. As soon as it seems to be near the point of shrinking, traders will bid away the political discount.