Yesterday, volatility on the Russian FX market markedly increased, accompanied by decent trading flows (MICEX turnover picked up to USD 6.2bn). In the morning, USDRUB easily crossed the 60.0 mark and continued moving north to hit 60.30. Lower crude oil prices were the background for RUB’s weakening, as Brent opened in the red following its sluggish performance on Monday. However, EM FX later strengthened amid a general uptick in risk sentiment on the global markets, which helped RUB to pare some of the earlier losses. In the evening, USDRUB touched 60.80 as EM FX turned a corner, whilst crude remained in the red. Yet, in the end RUB closed at 60.01 (-0.6%) against USD as Brent recovered. The EM FX index firmed 0.2%, boosted by ZAR, TRY and INR, which gained 0.4%. Commodity-based currencies performed strongly, with AUD and NZD up 0.9% and 1.3%, respectively.
Brent looks technically oversold at the moment, but the medium-term outlook for the oil market still appears negative. While the slight pullback in the USD might provide some short-term breathing space, all the market news remains negative. OPEC output is rising steadily, as Saudi, UAE and Iraqi production continue to set successive monthly records. US production remains stubbornly high (at just below record levels), the US rig count has started to turn up again (after falling sharply for more than six months) and US stocks have also started to rise again. As a result, we estimate that the global market surplus is likely to remain in the 1.0-1.5mmb/d range over the next 12 months, down from almost 3mmb/d in 2Q15 but still a major negative for prices. Indeed, we now expect the market to remain in surplus through 2017 as well. As a result, we see prices staying capped on the upside and largely range-bound in the medium term.