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RUB: volatile session


The beginning of yesterday’s session held little promise for the Russian FX market, with USDRUB easily breaking the 57.00 mark. Pressure on RUB increased in the afternoon, as Brent plunged to USD 54.1/bbl, pushing RUB as low as 57.60 against USD. However, at these levels oil bottomed out, then continued to recover steadily until the end of the day. As a result, Brent bounced up 1.5% to USD 56.5/bbl, providing firmer ground for RUB. The latter managed to close 0.3% in the black, strengthening to 56.71 against USD. Trading activity was quite decent, with MICEX turnover amounting to USD 4.6bn. The other commodity-based currencies lagged momentum, slipping 0.6% during the session; NOK surrendered another 1.0%. The EM FX index declined 0.5% yesterday, weighed down by BRL (-1.5%), MXN (-0.5%) and ZAR (-0.5%).

Brent is finally below USD 60/bbl, down 10% in the past three trading days as the US stock and rig count declines both reversed last week while US production has remained stubbornly at record highs. Moreover, OPEC production was again higher in June, with Saudi Arabia, Iraq and the UAE at new record highs, while prices broke below their 100D moving averages, resulting in short selling picking up pace again. Meanwhile, negotiations between Iran and the P5+1 countries continue to drag on, with the potential for a final deal, and hence increased Iranian exports, still on the cards.

Although Brent is now technically oversold, and so could bounce back in the short term, we think oil prices are likely to remain under pressure from the growing realisation that the global market is set to be in surplus until at least mid-2016, as US shale production is likely to prove far more resilient than initially expected while OPEC is aggressively chasing market share. Hence, despite stronger than expected demand growth this year, even stronger supply and record global inventories are more powerful factors.

Maxim Korovin, Tatiana Zueva
VTB Capital analysts


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