Barrel boost: oil ended the week with a five percent increase

Brent crude oil prices jumped by almost 5% by the end of the week, reaching $71 per barrel. Analysts point to several factors supporting growth, including a weakening dollar, a pause in the escalation of trade wars, and expectations of a seasonal increase in demand. However, experts warn that the trend may be short-term. Izvestia found out what to expect from the oil market in the coming weeks and how the increase in quotations will affect the ruble and the Russian budget.

Next week

According to Ekaterina Krylova, managing expert of the PSB Center for Analytics and Expertise, the range of $65-70 per barrel of Brent will look justified next week. The main factors are the pause in trade conflicts and the depreciation of the dollar.

"Now there are hints of a dialogue between representatives of the United States and China, and together with the weakening of the dollar, this has a positive impact on oil prices,— Krylova explained.

Additional support is provided by the expectation of a seasonal increase in fuel demand, said Olga Orlova, Head of the Industry department at the Institute of Oil and Gas Technologies.

— So far, oil prices have included a moderate increase in tariffs (about +10%) and a moderate slowdown in the global economy. At the same time, in the event of a new escalation of the trade war and tougher tariffs, a short—term collapse below the cost of American shale oil is possible - about $ 60 per barrel. This may trigger an increase in volatility and a corrective downward movement," said Vasily Tanurkov, Senior Director of the ACRA Corporate Ratings group.

Some market participants also point to the importance of statistics on oil reserves in the United States, published last week. Inventories decreased by more than 4 million barrels, which indicates a recovery in consumption and contributes to the growth of quotations. At the same time, production volumes remain high, and this may become a deterrent to further growth.

What OPEC+ will say and what to expect in the summer

OPEC+ has not yet signaled a revision of the strategy, but with further volatility it is possible. The situation is complemented by risks from Iran and demand from China.

—OPEC+ production restrictions can provide some support to prices, which the parties to the agreement may resort to in the event of a further drop in quotations (so far there is no question of this)," Vasily Tanurkov told Izvestia.

Olga Orlova believes that "in May-June, the oil market will seek a balance between seasonal consumption growth and increasing supply."

— If the United States and Iran do not reach an agreement, the geopolitical price premium will increase. This will support Brent above $70 per barrel. Otherwise, the growth of supplies from Iran, especially through China, will increase the pressure on the quotes," she said.

According to Orlova, the average price of Brent in June-July may be in the range of $ 68-72 per barrel, unless there is an escalation of trade wars or the collapse of the OPEC+ deal.

The weather factor should also be taken into account: during the summer season, demand for fuel traditionally increases in the countries of the Northern Hemisphere. This can temporarily compensate for the oversupply. However, as autumn approaches and the tourist season ends, prices may begin to adjust downward.

Ekaterina Krylova believes that in the absence of a new round of escalation of the trade war, oil prices in May and early summer will remain in the range of 70-73 dollars per barrel of Brent.

Budget plans in question

The price of Urals oil included in the Russian budget is $69.7 per barrel. As Vladimir Eremkin, a senior researcher at the IPEI Structural Research Laboratory of the Presidential Academy, clarified, "the volume of lost oil and gas revenues for the first quarter of this year can be estimated at about 300 billion rubles," since the current price level is lower than this target set in the budget.

— In general, so far this year, things are not going well for the price of oil: oil producers are increasing supply, and demand is under pressure, especially if the risks of trade wars escalating materialize. For this reason, the average annual price of Russian oil is unlikely to be able to approach the planned one. If oil prices continue to recover from current levels, this will make it possible to compensate for the budget deficit to some extent," the expert said.

By the end of the year, oil prices may recover slightly, but it is highly likely that the average Urals price will still be lower than the forecast value, said Nikolay Dudchenko, senior analyst at Finam.

If current export and price levels are maintained, Russia may lose up to 1 trillion rubles in oil and gas revenues, Olga Orlova noted. This will create additional risks for the fulfillment of social and infrastructural obligations of the budget.

— Budget revenues are determined not only by energy prices, but also by the exchange rate of the national currency. In the first quarter, the budget's oil and gas revenues amounted to just over 2.6 trillion rubles. According to the plans of the Ministry of Finance, they should amount to just over 10.9 trillion rubles," Nikolai Dudchenko recalled.

Is the ruble getting rid of oil?

The ruble's relationship with oil prices has weakened recently, experts emphasize. This is due to both internal monetary conditions and political factors.

— Today, oil prices are fundamentally influenced by much more serious factors than the weakening of the US currency. Today, the ruble is less dependent on fluctuations in the oil market, and its strength or weakness will be determined in the future by the state of foreign trade and investment flows into the country in a couple of months," says Vladimir Eremkin.

According to Nikolai Dudchenko, "we are witnessing a rather interesting picture — the ruble is still resistant to changes in oil prices." The inflow of investments into Russian bonds, the impact of currency controls, as well as seasonal factors remain important.

— Closer to the summer, we expect an increase in imports and, as a result, an increase in demand for foreign currency. In this regard, the exchange rate may begin to reverse to a gradual weakening," the analyst concluded.

The behavior of the Central Bank plays an additional role: while maintaining a high key rate, the influx of non-residents into Russian OFZs can support the ruble exchange rate. However, with lower rates, this factor will disappear, and then the influence of commodity prices will again become decisive.

Against this background, market participants are closely following the statements of the Fed and the ECB, as possible changes in their policies may have a global impact on asset prices, including oil and currencies of developing countries.