Bank of America Calculates $210 Ruble Scenario


Translated by Ollie Richardson for Fort Russ

20th January, 2016


If oil prices fall to $25 per barrel, the budget could be reduced without a deficit if the dollar is equal to 210 rubles, estimates economists of Bank of America.

If oil prices fall to $25 per barrel, for a balanced fulfillment of the Russian budget for 2016, the dollar should cost 210 rubles. For the implementation of the budget with a deficit of 3%, something the President of Russia Vladimir Putin in December called the maximum, the dollar should cost 140 rubles, estimates economists of the Bank of America Merrill Lynch.

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In mid-January the Minister of Economic Development, Alexei Ulyukayev, said that the Ministry is developing a stress scenario, according to which the price of a barrel of oil falls to $25. “We are preparing a stress test scenario in order to be prepared for any eventuality. We are now preparing even the calculations at the level of up to $25 per barrel”, he revealed in an interview to TV channel “Russia 24”.

The Russian budget for 2016 laid out on paper assumed the annual average price of oil would be at $50 a barrel and the dollar exchange rate rubles at 63.3. Ulyukayev said that it is too premature to revise the approved budget, “Despite there being a high degree of uncertainty, we do not need to pull the budget”. According to the head of the Ministry of Economic Development, reversal of the oil market can be expected at any time.

ING chief economist Dmitry Polevoy said that the devaluation of the ruble is unlikely to become the main tool for solving fiscal problems — excessive weakening of the ruble will significantly deteriorate the state of the economy, so neither the Treasury nor the Central Bank specifically will do this. “With the current price of oil you can’t depend on the ruble, the Finance Ministry will have to cut costs,” he explained. The Finance Minister Anton Siluanov, speaking at the Gaidar forum on January 13th, spoke about the beginning of the budget’s optimization. According to him, the government has already taken the decision on optimization of the budget, departments must submit proposals on the reduction of costs by 10%.

Since the beginning of the year, Brent crude has fallen by 20%, for the first time since 2004, falling below $28 per barrel. The dollar broke the mark of 79 rubles, the Euro rose to 86 rubles. The last time the dollar rose above 79 rubles was on 16th December 2014, when the maximum recorded value since the denomination of the index in 1998, was 80.1 rubles.

Oil analysts at the largest investment banks, at the beginning of the year, lowered their forecasts for oil. Societe Generale downgraded its forecast for the cost of Brent by $11,25, to $42.5 in 2016. Experts at ING have lowered the forecast of oil price in 2016 from $45-60 to $35-55 per barrel. Bank of America Merrill Lynch have revised their forecast for the cost of Brent in 2016 from $50 to $46 per barrel. Analysts of Gazprombank have revised their forecast for oil prices in 2016 from $50 to $38.3 in the barrel. The dollar, in their opinion, at the end of 2016 will amount to 72,3 RUB.

The assessment of Barclays: the average annual price of oil in 2016 will be $37 per barrel (against a previous forecast of $60 per barrel). Analysts of the bank, Kevin Norris and Michael Cohen, in their review wrote that due to the visible deterioration of the situation on the oil market, in early 2016 they were forced to make adjustments to the forecast oil prices. “Although we continue to expect an increase in oil prices in the second half of 2016, we can see that the growth will start from lower levels than projected earlier, and will be slower,” stated the review.

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