Russian Ruble Tumbles Amid Oil Wars
The Russian ruble plummeted almost 10% due to falling oil prices. An “oil price war” between Russia and Saudi Arabia put the currency under pressure.
Russia’s rejection of a new round of oil production cuts in the OPEC+ format triggered an “oil price war” between the two largest energy suppliers.
The ruble was at 75 to $1 in forex trading on Monday, showing a 9.5% drop, and 85 rubles to 1 euro. It has hit a four-year low against the USD following the 30% oil price crash overnight. When the Moscow Exchange closed on Friday, the Russian currency was at 68 per dollar and 80 per euro.
The cost of oil falling by 25% was the largest fall it had in a single day. Brent crude oil now costs less than $35 per barrel, which brings the price of oil below Russia’s budgetary rule.
However, the cause of this price drop is also Russia’s decision. Their government refused to support OPEC countries in their proposal to cut down oil extraction to stabilize prices.
Investors have sought safe assets amid the aggressive spread of the coronavirus that caused these current oil price issues.
How Long will the Ruble Continue to Decline in the FX Market?
Moscow still relies on energy exports for its budget, which has a break-even rate of $50. They funnel the profits on oil at $42 a barrel into the country’s National Welfare Fund. However, with prices below those levels, they would either spend their accumulated reserves or borrow more.
The country’s Finance Ministry confirmed Monday their government would sell foreign exchange reserves in a bid to stabilize their currency. He said these funds are enough to cover the shortfall in income from falling oil prices to $25-$30 per barrel for 6-10 years.
Analysts at the consultancy firm Macro Advisory said Russia is in a better position to fight this one than before. Financial reserves are $570 billion, or almost 100 billion more than Saudi Arabia’s and they have a flexible currency policy. They will allow the ruble to fall into the mid-70s versus the US dollar.
The prices of Russian stocks on the London Stock Exchange have also dropped. How long ruble will continue to depreciate in forex will depend on the length and severity of the coronavirus outbreak. The global impact of COVID-19 is what triggered the oil-price collapse.
