Russian Ruble and Oil Dollar Price Diverge.

By Rhod Mackenzie

There are strange times taking place in Russia within the currency market and the commodities market with the oil price and the Russian ruble. As we know the oil price around the world is fixed in dollars and the strength or the weakness of the ruble over the last few years has depended on the price of a barrel of oil. This is a similar situation as used to take place with the price of gold and the dollar. This pairing also has now long parted ways.It was when gold went up then the dollar went down
So The currency market in Russia  is displaying a situation that would have been considered atypical just a few years ago: the fall in oil prices – an important source of income for the Russian budget – is not weakening the ruble.
In fact, the ruble often moves in antiphase.
So What are the reasons for this phenomenon, and can we now calculate the dependence of the national currency on oil, which is a key source of budget revenue?
On Friday and Monday, the over-the-counter dollar rate fell below 82 rubles, marking the lowest point in several weeks. Following the trading day on Monday, the official rate set by the Central Bank was 82.7 rubles per dollar. 
Concurrently, Brent crude oil, widely regarded as the global indicator, has experienced a decline of almost $10 per barrel over the past couple of weeks, approaching $60. On Wednesday, it strengthened slightly to $65 per barrel, but remains well below the levels recorded at the end of March, when it was at $74 per barrel.
This indicates a gradual shift in the ruble exchange rate's long-term correlation with oil prices. It is increasingly influenced by other factors with varying degrees of intensity.
Now before I continue I would like to make an appeal,if you like and enjoy my videos you can help me fund the channel and my websited sco brics insight .com and to further develop it. You can do this by making a small donation which you can do by clicking on the thanks button at the bottom of the video screen. Everybody who donates does get a personal thank you from me.

Firstly, the demand for all oil and gas resources that the country sells and their prices are important. While oil prices may be declining, gas prices for Europe are still steadily rising. Pipeline supplies have decreased significantly, and the EU countries are maximising the capacity of the last remaining route – the Turkish Stream the price of the gas however is not going down and is fixed by the spot price at the Dutch Transfer Title Facility which effectivetly is the Gas Exchange .

This is due to the need to replenish gas storage facilities in preparation for the new season. Concurrently, we observe an uptick in LNG exports from Russia, a development that is further bolstered by the ongoing trade tensions between the US and China, creating a favourable environment for a substantial increase in supplies directed towards the eastern markets.
The second key factor that traditionally influences the exchange rate is the balance of payments deficit/surplus. In essence, if a nation's imports exceed its exports, the balance sheet will be in deficit, leading to a depreciation of the ruble. Conversely, if exports exceed imports, the country's foreign exchange reserves are bolstered, thereby strengthening the ruble.
However, this is according to the textbook, and in reality the situation is different. In the first quarter, the balance was still in surplus, but due to a fall in exports, the surplus was decreasing. Notwithstanding this, the ruble demonstrated notable strength, appreciating by 20% since the start of the year.
The absence of correlation in the present circumstances suggests that, in addition to conventional market factors, the ruble exchange rate is influenced by geopolitical variables and artificially maintained restrictions, as explained by Svetlana Frumina,  Head of tf Global Financial Markets the Russian University of Economics.
She identifies state policy in the field of import substitution as a contributing factor to the strengthening of the ruble. In situations where the cost of manufactured goods is influenced by imported components, a stronger ruble can help to limit price growth and prevent inflation.
However, it is crucial to examine the current conditions that are emerging in the wake of the strengthening of the ruble. These include the political manoeuvres of the Trump administration, leading to a decline in interest in the US dollar; China's countermeasures, including its interaction with Canada; and the reformatting of logistics associated with the new "patrolling" tariff policy.
"For the most part, this remains geopolitical, as the contours of a new world order are being formed, with Russia playing a significant role," the expert explains.
The Central Bank and the Ministry of Finance have been actively supporting the ruble by increasing sales of gold and currency.
"At the same time, there is increasing talk about using currency outside the Russian Federation for import settlements through swap transactions, as well as settlements through digital and crypto assets, which leads to a decrease in demand for currency within the country. In addition, there is currently no classic outflow of foreign capital with a decrease in oil," recalled Dmitry Alexandrov, head of the analytical research department at AVI Capital.
The Key factors contributing to this shift include the transition to a floating (market) pricing system following the Bank of Russia's abolition of the bi-currency basket as an exchange rate benchmark in 2014.
Since then, the economy has been adapting to this new currency order. The exchange rate's dependence on energy prices has gradually decreased, although this did not become  immediately apparent.
"Consequently, the oil factor for the market has now receded into the background and is more closely linked to the implementation of the government's budget plan, which can be adjusted based on the financial and economic situation in the world.
The risks of forming a budget deficit will probably be played out by the market by the end of the second quarter," concluded Alexander Shneiderman, head of the customer support and sales department at Alfa-Forex.
The situation is highly uncertain, and even the most experienced analysts are reluctant to estimate how long this unusual ratio will last. The situation is highly volatile, and the consequences of the ongoing changes are difficult to predict. Secondly, the economy may face second- and third-order consequences, such as a shortfall in budget revenues due to the strengthening of the ruble, and commercial banks may encounter difficulties in processing payments on deposits.
According to Shneiderman, at least until the end of April, the ruble exchange rate will depend on geopolitics, as well as on the dollar's slump against world currencies against the backdrop of Donald Trump's latest "tariff show." Against this backdrop, the ruble may strengthen to 80 per dollar. But if the process continues, then, coupled with cheaper oil, the risks of a budget deficit will increase significantly, and this will have a negative impact on the ruble.

In general, until the Central Bank starts to lower the rate or a large-scale price drop begins on the energy market, the ruble can remain strong for quite a long time, avoiding deep devaluation. At the same time, it is unlikely that with such oil prices the ruble will remain at these levels for more than one and a half to two months - a gradual weakening will become increasingly expedient and probable, Aleksandrov believes.
In other words, in the current conditions, the strengthening of the ruble exchange rate is due to the interaction of multidirectional factors, including geopolitical unpredictability, fluctuations in energy prices, a reduction in demand for foreign currency in the context of high rates on ruble instruments, etc. All these factors operate in a complex system, which creates the current dynamics. It is more difficult to forecast in these conditions than in the era of stability and a strong link between "expensive oil and a strong ruble." But those times will probably never return.