The OPEC+ has put off the output policy meeting until Thursday due to the disagreement among key players. Investors have switched their attention to oversupply worries which put pressure on oil quotes. Today, the background is mixed for the ruble. On the one hand, oil prices are falling but the emerging market currencies are steadily gaining ground. Global crude prices have retreated from the 6-month highs, but oil is still holding at comfortable levels. In the early session, Brent futures contract with the nearest expiration was trading above 48 dollars per barrel, having moved slightly lower. Meanwhile, WTI futures settled above 45 dollars per barrel.
Oil depreciated on fears that the OPEC+ may not extend current output cuts for the next year. Not all members of the cartel agree to continue the production cut program. Thus, the UAE said it would support the agreement only if other group members will improve their compliance with the commitment.
Although the news background has influenced the market sentiment, the overall picture remained the same. Investors hope that the alliance will finally reach a compromise. The deal may be prolonged by just three months, instead of the six month expected by the market.
The current uncertainty is causing price fluctuations over the short time period. If the OPEC+ members fail to come to an agreement, oil prices will continue to fall. Whether the pressure will persist, also depends on the oil consumption volumes in the world and in the US in particular.
Actually, the upcoming decision on the output cuts may not be so crucial for the energy market in the long run. It is far more important to maintain the effective cooperation of the cartel and ensure that its members are ready to take action to support oil in the feature. If the alliance does not reach an agreement on Thursday, it can always return to this issue later.
In case the deal is extended for two or three months, oil may advance by 2%.
In the meantime, the ruble’s behavior surprises traders. Despite positive factors, the ruble started a correctional decline. The fall was not so deep. Yet, the decline was rather noticeable given the stable oil prices, the rise in industrial metals, and the easing of the US dollar. All this indicates high level of speculations on the Russain currency.
In the near future, the ruble is expected to strengthen. On Tuesday, it opened the session in positive territory against the US dollar. The ruble gains support from a moderate rise in the emerging market currencies amid vaccine hopes. At the same time, the end of the tax payment period in Russia is a limiting factor.
Despite an attempt to regain ground, the ruble is unlikely to settle below the level of 76 against the dollar. Recently, the ruble has been responding to changes in oil prices rather than to the dynamics in the foreign exchange market. The delayed meeting of the OPEC+ serves as the main disturbing factor for the energy market. If oil moves down, the ruble will face additional pressure. This will help the US dollar to win back some of its previous losses.
Currency interventions from the Russian Central Bank within the budget rule may come into focus of the markets in the near term.