RUB lost momentum at the end of the week, as the crude oil market saw a decent correction: Brent has lost near 3.0% since Wednesday, closing at USD 62.7/bbl on Friday. Thus, the market ignored the previous week’s IEA report that said that demand for crude was certainly growing faster-than-expected, as it raised its forecast for global demand growth both in 1Q15 (+1.7mmb/d) and for FY15 as a whole (+1.4mmb/d), the latter being the largest increase since 2010 (which reflected the recovery from the crisis-low 2009). This echoed the comments of Saudi oil minister Ali al-Naimi, who declared his ‘happiness’ with the oil market after the latest OPEC meeting. To recall, he said that demand was rising, supply was slowing, and by inference OPEC’s strategy was working (well). Meanwhile, OPEC production has increased by almost 1mmb/d in the past 12 months to 31.33mmb/d in May, well above its 30mmb/d ‘ceiling’. Hence, assuming the IEA forecasts prove correct and OPEC output averages 31mmb/d for FY15, total global supply will average 95.6mmb/d in 2015 resulting in a global surplus of 1.6mmb/d. This would be the largest surplus since 1998, and clearly signals limited upside price potential in the near-term, in our view.
Separately, although US crude stocks have started to fall in the past 4-5 weeks, total OECD inventories have risen sharply in the past three months, up 105 million barrels to multi-year highs of 2,835 million barrels, close to 150 million barrels above normal levels. In particular, stocks in Europe have moved from well below their five-year average at the start of the year to 7-8% above average levels and near the top of the five-year range in May.
In the light of this, RUB weakened near 1.6% at the end of last week and closed at 55.23 against USD on Friday. For the same period, the EM FX index was flat, but mostly owing to the recovery in TRY, which firmed 0.8%. At the same time, ZAR, KRW and INR slipped near 0.4-0.6%, whilst MXN and BRL were flat. NOK remained flat since Wednesday, but AUD and NZD ended 0.4% and 3.0% in the red, respectively., The tax period kicks off today in Russia, but the most important date is set to be 25 June, when companies pay VAT and MET. In addition, on 29 June corporate profit tax is due. We think RUB might enjoy some bid coming from exporters, which could offset the growing capital outflow temporarily, but we think the latter would still come centre stage in the medium term, especially if Brent remains within the 60-65 trading range. We do not think today’s CBR policy meeting will have a visible impact on the FX market, unless the regulator delivers a markedly bigger than expected rate cut.