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Rouble plummets to new record low amid tumbling oil prices Russian rouble suffers biggest fall since 1998 crisis as oil price tumbles
(about 11 hours later)
The Russian rouble plunged to a new all-time low on Monday as falling oil prices and the ongoing crisis in eastern Ukraine weigh on the country's economic prospects. The plummeting oil price pulled Russia’s currency down with it today, with the rouble recording its biggest interday fall since its 1998 currency crisis.
The Russian currency traded at 52.75 roubles against the dollar in morning trading Monday after shedding 15 per cent in the previous week. The rouble was also down 5 per cent against the euro. Oil prices have fallen by more than a third since the summer and Brent crude dipped below $70 a barrel on Monday while the rouble is down about 40 per cent since the start of the year.
Battered by low oil prices and the conflict in eastern Ukraine, the rouble has been declining throughout the year, losing about 42 per cent of this value since January. The world’s number two oil exporter saw the rouble plummet more than 6 per cent to all-time lows of 53.86 against the dollar but it bounced up toward the end of the session as the price of oil recovered slightly. Brent crude fell as low as $67.53, its lowest for five years, before picking up slightly.
The Kremlin, which in the past supported the exchange rate by buying up the roubles, says it considers the pressure on the currency to be speculative and is happy for it to remain freely floated in markets. The oil market has been tumbling for the past month but was hit further on Monday by a slowdown in manufacturing in China as well as last week’s decision by the Organisation of Petroleum Exporting Countries to leave its production target at 30 million barrels a day. Saudi Arabia, the oil cartel’s biggest producer, said it was happy with the decision to maintain production despite plunging oil prices.
Last month, President Vladimir Putin said he was "hopeful" market speculation against the rouble would end soon, arguing the decline in value of the Russian currency is not based on economic fundamentals. Russia depends heavily on the revenue it gets from its oil and stands to lose billions from the dive in the price. Oil and gas account for about two thirds of Russia’s export revenue. But Russia isn’t the only region whose currency has been hit severely. Nigeria’s naira has been falling in recent weeks and last week the African producer’s central bank had to devalue by 8 per cent to halt a slide in its foreign reserves. Oil sales provide about 95 per cent of those reserves and on Monday the naira fell a further 3 per cent against the dollar.
The price of oil, the backbone of the Russian economy, has dropped roughly 25 per cent since the summer. Brent crude, an international benchmark, fell 3 percent on Friday and was down another 1 per cent on Monday to $69.47 a barrel. Malaysia’s oil-dependent ringgit also suffered heavy losses, while the Japanese yen hit a seven-year low against the dollar.
The recent slide follows OPEC's decision last week to leave its production target unchanged. Member nations of the cartel are worried they'll lose market share if they lower production, which could have helped to push up the price. The price of oil also affected corporate activity as the explorer Dragon Oil was forced to forsake its £492m takeover bid for rival Petroceltic. Dragon had offered 230p a share for Petroceltic in October, when the oil price was well above $90 a barrel. But as the sell-off continued Dragon said yesterday that “in the light of prevailing market conditions, it no longer intends to make an offer”.
"In the short term, the Russian market is a victim of OPEC's apparent decision to reduce the volume of high-cost production through lower prices," Moscow-based investment bank Sberbank CIB said in a morning note. "The market and the ruble will not stabilize until oil does." The news sent Petroceltic’s shares crashing by more than a third, down to 113.5p. The deal would have given Dragon – which is focused on Turkmenistan – a firmer footing in Algeria, where Petroceltic owns a number of gas projects.
Russian monetary officials sought to assuage fears of a rouble free fall. Insiders said that while the deal still made strategic sense, it would be dependent on a recovery in the oil market. Both firms are dual listed in London and Dublin, and under Irish takeover rules Dragon must wait a year before making another approach unless another bidder joins the fray.
Ksenia Yudayeva, deputy chairman of the Russian Central Bank, told Russian news agencies on Monday there is enough currency liquidity in the market and that the Central Bank has prepared new economic forecasts based on a price of $60 per barrel. The oil price difficulties and weakening commodity prices stoked fears of deflation and were joined by concern about weakening manufacturing output in many regions across Europe and Asia.
Additional reporting PA