22.07.2020: RUB trading in range of 70.00-71.40 (Brent, USD/RUB)

In early session, oil prices came under pressure from the data provided by the American Petroleum Institute that broke off the rally in the energy market. The ruble is trading in a downward trend after two days of gains. Traders attach more importance to the likelihood that the interest rate could be cut on Friday. That is why, buying 7-year bonds with fixed coupon rates seems attractive.
On Tuesday, oil price advanced significantly. When the trading day started, the price broke through the resistance level of 44 dollars per barrel, which had been a major obstacle since the beginning of June. By the end of the day, buyers managed to reach the level of 45 dollars. Thus, the price has hit a new high since the beginning of March. However, the price lost momentum amid the data released by the American Petroleum Institute.
US crude inventories rose by 7.5 million barrels last week. The news undermined the demand for oil as it reminded investors of a rising glut of supply around the world. In the short term, the API data could put the quotes under pressure and limit their growth.
At midday, Brent crude oil futures contract for September lost 0.6% compared to yesterday’s closing price, falling to the level of 44 dollars 5 cents per barrel. WTI crude futures for delivery in the same month plunged by 0.9%. The US crude oil was valued at 41 dollars 50 cents per barrel.
Today, Brent is likely to trade in the range of 43.8-44.7 dollars per barrel. The medium-term range has shifted after the price broke through the $44 mark. Now it is 42.5–53.8 dollars per barrel.
Later, market players will focus on statistics from the US Department of Energy. Investors expect it to cut crude inventories by 1.9 million barrels. The industry report along with the dynamics of US stock indicators helps determine the further movement of hydrocarbon prices.
In midday trading, market sentiment was moderately negative. Traders started to lock in profits amid the comments of Senator Mitch McConnell. In his opinion, a new $1 trillion aid package is unlikely to be adopted this week.
The ruble started the day in a sideways trend but then went down, losing 0.19% against the US dollar. Today, the dollar/ruble pair is expected to move within the range of 70.00-71.40.
The decrease in foreign exchange interventions by the Russian Central Bank is dragging the ruble down. In addition, the cash flows of the dividend season are putting some downward pressure on the currency.
However, the ruble can be supported by the ongoing tax period. Reuters estimates that the volume of corporate taxes paid in July could significantly exceed the June figures. The energy market provides additional support to the Russian currency. Despite its correction after the API reported an increase in US crude inventories, Brent futures contracts remain close to the level of 44 dollars per barrel.
The meeting of the Central Bank of Russia is also in the focus of investors. The demand for medium-term and long-term OFZ bonds may impact on the regulator’s decision to shift down the range of the neutral rate. Meanwhile, analysts expressed contrasting assessments of the pace of monetary policy easing. Some expect the rate to be lowered by 25 basis points, others – by 50.


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