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10 March 2020, 17:34
Aleksei Avdonin

Don't think the current situation is a catastrophe or an unmanageable crisis

Aleksei Avdonin
Aleksei Avdonin
Analyst of the Belarusian Institute of Strategic Research (BISR)

Falling global prices for oil make the top headlines today. Oil prices dropped by more than 40% due to OPEC+ countries failing to come to terms on a further decrease in oil extraction during negotiations in Vienna in conditions of the falling demand due to the coronavirus situation. As a result the Russian ruble grew weaker, which could not but affect the value of the Belarusian national currency. Aleksei Avdonin, an analyst with the Belarusian Institute of Strategic Research (BISR), talked to BelTA to explain why the oil market situation cannot be described as unmanageable and what results the urge to sell Belarusian rubles may bring about.

Global oil prices dropped not only because of the failure of the negotiations of the OPEC+ countries. “It is also part of the natural dynamics of the oil market. Oil buyers and sellers expected more oil seeing OPEC decisions and hearing statements that many oil-extracting countries will ship more oil. The law of market supply and demand was triggered, bringing down oil prices as a result. It must be said that oil prices have been fluctuating for the last two or three weeks due to falling production in China. The same situation with sharp price surges and falls will be observed for the next six months,” Aleksei Avdonin believes.

In his words, the management system of the global oil market is changing, new rules are being introduced. “When the structure of the market changes, when market rules and terms change, it inevitably results in the fluctuations we see now. Oil prices drop. The currency of the countries that produce oil gets cheaper. The stock of oil-extracting companies gets cheaper. Problems and differences of opinion between key market players have been accumulating for a long time. Don't think the current situation is a catastrophe or an unmanageable crisis. Indeed, there are market reasons behind it. As a self-regulating entity the market will reach an equilibrium that will result in a fair price for oil and national currencies,” the analyst said.

The analyst expects the oil prices to continue declining for some time. “But it won't last long. A new balanced price will be set. It will be even higher than $30 per barrel at present. It will move closer to $45. At the same time the exchange rate of the Russian ruble will get stabilized. This week and the next one its exchange rate will continue fluctuating wildly. However, it should be viewed as a temporary phenomenon,” Aleksei Avdonin is convinced.

The exchange rate of the Belarusian ruble is also going to change (taking into account the fact the Russian ruble is part of Belarus' basket of currencies), however, not as wildly as the Russian ruble. This is why Aleksei Avdonin believes it is inadvisable to buy foreign currency now when its price is getting steeper, without an explicit need. “It will definitely result in lost savings in Belarusian rubles. Many central banks have already stated they are not going to regulate or tame the exchange rates of their national currencies. In other words, it is possible that the trend will be reversed in the next two weeks and the exchange rate will decline. Those, who buy foreign currencies now when prices are climbing, may lose money due to the difference,” the expert noted. He called for a sensible assessment of the situation.

The National Bank of the Republic of Belarus has already stated it will not leash the exchange rate of the Belarusian ruble. The value of the ruble is going to change depending on global trends. The exchange rate will be driven by supply and demand. “You have to understand that a weaker national currency has its benefits. Exports get cheaper, securing an additional competitive advantage, a price advantage on foreign markets. In this situation our manufacturers and exporters should be quick on the uptake, tweak prices for exports, and offer products to customers at appealing prices. If we ride the trend, we can profit from the fluctuations,” Aleksei Avdonin explained.

The same is true for falling oil prices. “We are in a more advantageous position as far as the ability to buy oil from other suppliers as well as from Russia is concerned. Although there are cons as well. The oil products Belarus exports will become cheaper, too. This is why the Belarusian state petrochemical concern Belneftekhim and oil refineries should prevent differences in prices. In the absence of a steady agreement with Russia we can be more flexible with pricing. There is space for maneuvering with new suppliers in order to buy oil at current prices. Exporting oil products and benefitting from the difference are the key goals,” the expert summed up.

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