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How did oil become speculative product? Oil price effects on Belarus

The focus of the economy in the week was focused on the ups and downs of world and national currencies as well as their dependence on oil prices. Black gold prices set the tone on the stock exchanges this week. The Belarusian ruble was also affected.

There are a lot of reasons for change in Belarus' currency basket but they all fall into two main groups: external and internal factors. Experts state that about 80% of price changes of the Belarusian ruble are due to external factors.

One of these reasons is the slowdown in the world economy. First of all, the economies of major players.

Mikhail Grachev, financial analyst:
China is a locomotive that drags the world economy. There's now a decrease in growth there. We see outflow of capital from stock markets in China.

China is not only the largest producer but also the consumer of raw materials. Thus if the economy of China is slowing, demand for oil is at risk dragging down prices.

Speculators want to further destabilize the stock market and drive the price of a barrel into a tailspin.

Alex Karatkevich, PhD of Economics:
Oil has become a speculative product. It cannot be that oil declines in price in a relatively short time by three times!

While demand for raw materials falls, supply is increasing.

Mikhail Grachev, financial analyst:
In the oil market, right now there is a price war between the major producers. They are Saudi Arabia, Russia and Iran, which, after the removal of some of the sanctions, is entering the market of hydrocarbons. These are the same Mexico, Canada, the United States, which also produces oil. The market is oversupplied. And in order to leave a place for themselves on this market, manufacturers are forced to go to a drop in prices.

Russian currency depends on oil too. Falling oil prices make the ruble cheaper.

This, in turn, affects the Belarusian ruble. The two economies are too tied. Russia is our main trading partner. It occupies first place in Belarus' exports and imports.

This week Belarusians saw in action the following chain: the Chinese economy - the price of oil - the Russian ruble - changes in Belarus' basket of currencies. What are internal factors affecting the price of the Belarusian currency?

One of the main factors of exchange rate in any country is the policy of the National Bank.

At the end of 2014, the National Bank changed its policy. Experts note that this led to positive changes in the financial market. The money supply is not growing. Currency interventions do not eat up Belarus' foreign exchange reserves. Double continuous auction means that we see by and large the real market value of the Belarusian ruble. This week oil became cheaper and the rouble fell by over BYR1,000 against the dollar.

Andrei Zhishkevich, chairman of a commercial bank:
Probably it is even a good thing that we observe such jumps, which confirms that the National Bank really honestly fulfills the selected gear. It operates quite efficiently the tools it has at disposal. That is, we do not have excess ruble base of the Belarusian ruble, which would, in turn, further press on the Belarusian ruble.

On Friday, after oil prices rose up to over $30 a barrel, the Belarusian ruble appreciated and fought back BYR490 against the dollar and almost twice as much against the falling euro.

Foreign trade surplus is a guarantee that Belarus is not going to face foreign currency deficit. That means there will be no pressure on the Belarusian ruble. Belarusian exports are now losing ground. And not only for the actual volume, but also in price terms. It is an objective fact: demand is falling and prices are falling too, which means dropping revenues.

Nevertheless, the diversification of trade is underway in Belarus. In January-October Belarus sold abroad more than it bought. It means that this factor is not playing a significant role in the changes in the basket of currencies.

Competent investments means the inflow of foreign currency into the country, jobs and productivity growth.

Devaluation expectations in Belarus are still quite high. Banks and businesses remain the main players in the currency exchange market but the increasing panic and unjustified demand press on the Belarusian ruble.

This week the Government and the National Bank published a set of measures to address the socio-economic development in 2016, aimed at macro-economic balance.

Oleg Ilyin, financial analyst:
These are efforts to support exports, improve foreign trade situation with regard to investment and innovations policy. The measures are aimed at improving the efficiency of the economy. They will work. But we also need some time here.

Commodity markets and the world's leading economies also need time to come out of recession and start recovery.

How did oil become speculative product? Oil price effects on Belarus