Petrol to record price? Not yet.

Good news: there are indications that the rise in the oil price is coming to an end, so that the pain at the pump does not get worse. But why was the Russian ruble not sucked into the oil price this time around?

It is a lot quieter on the roads than before the virus outbreak. Yet the petrol price is approaching a record level. According to United Consumers, you now pay €95 for a liter of Euro1,851. That's about 25 cents more than a year ago. The top level of € 1,895 from 2012 is approaching.

The increasing pain at the pump has of course everything to do with the recovery of the oil price. A barrel of Brent oil costs almost $70, compared to just over $2020 in April 20. The good news for motorists is that there are all kinds of indications that this price increase will not continue.

What does the futures market predict?
An important reason for the resurgent price is that OPEC countries closed the oil tap a little further last year. Saudi Arabia has also cut production by an additional one million barrels per day, on top of the agreed restrictions. It doesn't take much imagination to imagine that that tap can easily be turned on when the economy gets going again and the oil price rises.

That is an important reason why a price drop is priced in on futures markets. The contract to deliver a barrel of Brent oil in June cost just over $67 on Wednesday. In December that same barrel will cost less than $64 and by the end of next year it will be even less than $60.

Oil coins keep quiet
It is noticeable that the currencies of oil-exporting countries hardly move. Admittedly, the Norwegian krone and Canadian dollar have gained ground against the US dollar over the past 12 months. But the ruble has not yet recovered. This also applies to the Russian economy.

The oil rally recently prompted ING analysts to raise its forecast for Russia's current account surplus by as much as $25 billion to $70 billion. In addition, Russia's national debt is much lower than in the developed world and the country has large currency reserves. There are several reasons why the ruble has not yet started to gain momentum.

Brake on the ruble
The oil that is now leaving the country has already been sold before the prices were still low. In addition, Russia uses a large part of its oil revenues to buy foreign currencies. This tactic limits the impact of oil price fluctuations on the ruble.

Another factor is that the growth prospects for the Russian economy are limited as a result of an aging population and international sanctions. The IMF calculated that the medium-term growth potential is only 1,6% per year. Finally, the rapid rise in US interest rates is also putting a brake on the ruble. You now receive almost 1,6% interest on 10-year government bonds.

This makes it more attractive for investors to hold their money in dollars than in currencies of emerging countries such as Russia. Despite the rally in the oil price, miracles should not be expected from the ruble for the time being. 

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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