Brent Might Rise and Strengthen Ruble

The subsequent growth of the dollar to 57.6 rubles on July 1, 2022. Several factors contributed, one of which was the refusal of some Russian companies to pay dividends; the other is the beginning of July, in which an increase in oil production is expected, agreed by the OPEC + oil cartel.

The strong rise in oil prices this year has shown that the world is not yet ready for a sharp transition to clean energy resources. The rise in prices for black gold was also pushed by the embargo from the EU on its purchase from Russia. Countries supplying petroleum products, including Russia, can earn on its sale. In June of this year, the OPEC + member countries agreed to increase oil production to 648,000 barrels per day to keep prices rising. This decision was facilitated by the visit of the US President, where fuel prices are breaking all records, Joe Biden to Saudi Arabia.

Despite the fact that the agreement was reached by the cartel, the likelihood that the participants will still be able to increase volumes remains in question. Such doubt arises taking into account the analysis of production data for June, when the cartel did not reach the planned production volumes of approximately 1.4 million barrels per day from the planned 24.67 million barrels per day. The protests in Libya will also complicate the achievement of production targets this month.

Thus, the expected drop in oil prices may be again postponed. A more severe scenario may be a continuation of the rise in oil prices to the May and June highs in the region of 120 – 124 dollars per barrel, with the possibility of growth to 130 dollars per barrel of BRENT oil remaining.

According to the technical analysis of the BRENT brand, its price is in an ascending parallel channel. At the moment, the local resistance for continued growth is the mark of 114.88 dollars. If this resistance is overcome and the price closes above 114.88, it is likely to rise to the above 120 and 124 dollars, which will also have a positive effect on the strengthening of the ruble.

At the same time, one should not forget that an increase in production above the volumes of the previous month may already have a negative impact on oil prices.

It is likely that the decision to transfer the calculation of duties on grain and oil into rubles was made taking into account the risk of falling oil prices. Russia is the largest exporter of grain, Ukraine is also the world leader in the export of these crops. However, if the EU and countries “unfriendly” to Russia try to take grain out of Ukraine through threats, then the “friendly” ones will have to buy rubles.

This problem can be solved by a single reserve currency based on the portfolio of BRICS countries. This single currency can also be extended to other blocs that these countries belong to, for example, the SCO. The process may not be quick, but ambitions to move the dollar from the position of a global currency for mutual settlements are turning into plans.

It is known that the main hegemony of the dollar in the world economy is supported mainly by oil trade. With the support of the world’s leading oil exporters, the use of alternative currencies, in particular for sale to such large consumers as China and India, the dollar will undoubtedly lose its leadership. During the BRICS Leaders’ Summit, Chinese leader Xi Jinping announced the need to begin the bloc’s globalization by inviting the leaders of 9 countries, including Saudi Arabia and the UAE.

The invitation is clearly based on interest on both sides. The deployment of NATO forces and the policy of “open doors”, the admission of Finland and Sweden, prompted China and Russia to start a similar policy of accepting other countries into their blocs. The world will be bipolar. “Fast changes are underway in the global monetary system that could affect the international role of the dollar,” said Fed Chairman Jerome Powell.

If all of the above can be attributed to fundamentals, which must be taken into account when analyzing the movement of the world economy. As for short-term movements of the dollar against the ruble, there is still a chance of the dollar rising to 60-62 rubles this month. There may be several factors, but the main one is the admission of Finland and Sweden to NATO.

The last two events on the part of Turkey also had a negative impact on the ruble exchange rate: the ratification of the acceptance of the above countries into the alliance, as well as the detention by the Turkish government of a dry cargo ship with grain, sailing under the Russian flag, at the request of Ukraine.

As for technical analysis, on the chart of the dollar/ruble pair, there is an upward trend to 58 in the coming days or next week and up to 62 this month.

It must be taken into account that the dollar itself has not weakened. The dollar index, made up of portfolios of currencies of major economies, broke records.

Consequently, all geopolitical events around Russia, as well as all developments with the supply of grain.