OPEC decides not to go for supply cut and oil prices fall the most since the collapse of the financial system in 2008, taking the ruble down with it.
Oil prices dropped around 40% this year and currently trading at 65.54 per barrel, over $2 lower since Friday when traded at around $68.65.
Many economies are expected to suffer from OPEC’s decision to let the oil market stabilize itself. Russia, already suffering from European and U.S. sanctions, can no longer rely on the same oil revenues to rescue its economy. Iran, also under sanctions, will need to reduce subsidies that have been provided to its growing population. Nigeria is fighting an Islamic revolution, and Venezuela is suffering from its own political and economic policies.
The International Monetary Fund (IMF) assessment in October revealed the oil price requirement needed for different governments to balance their budgets. The IMF said that Kuwait, Qatar and the United Arab Emirates can break even with oil at about $70 a barrel, Iran needs $136, Venezuela and Nigeria need $120, and Russia can cope at $101 a barrel, Bloomberg reports.
"Russia in particular seems vulnerable," Allan von Mehren, chief analyst at Danske Banke A/S in Copenhagen, pointed out and reported by Bloomberg. "A big decline in the oil price in 1997-98 was one factor causing pressure that eventually led to Russian default in August 1998."
Oil and gas provide 68 percent of Russia's exports and half of its federal budget. Russia already lost almost $90 billion of its currency reserves this year while trying to protect the national currency after Western countries imposed sanctions over the crisis in Ukraine. The ruble is down 31 percent against the dollar since June. At 06.15 GMT this morning, the ruble was 3.1 % weaker at 52.00 against the dollar and 2.5% down at 64.55 against the euro. After the new crash, USDRUB is now trading at 52.54 and EURRUB at 65.53
However, Russian president is not worried saying on Nov. 28 in Sochi "Winter is coming and I am sure the market will come into balance again in the first quarter or toward the middle of next year,", Bloomberg reports.
Analysts are expecting oil prices to fall to as low as $60 a barrel in the near future.
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