Improvement in operating conditions in Russia In July 2017, operating conditions in Russia improved at the fastest pace since January 2017. The Russian PMI (purchasing managers’ index) increased to 52.7 from 50.3 in June 2017. New orders and output saw the strongest expansion, each reaching a six-month high. The surprising improvement in the manufacturing sector comes […]
The Russian economy remained in recession after having declined by 3.8% in 4Q15 from a year ago. The figure was released by Russia’s Federal Statistics Service.
In this series, we’ll look at how the active and passive funds focused on the BRIC nations have performed. A variety of incidents and developments have led to the loss of investor confidence in these economies.
Russia’s energy exports have been hurt by falling crude oil prices. Meanwhile, Saudi Arabia has become engaged in a price war with US shale oil producers.
In November 2015, Iran’s oil minister announced a new model of contracts for foreign oil and gas companies during a two-day conference in Tehran. The new framework allows foreign investors to retain the oil fields for a longer period.
Per the EIA, in 2013, crude oil constituted 68% of Russia’s total exports and 16.4% of its GDP. Also, Europe (FEZ) and Asia account for a significant portion of Russia’s crude oil and natural gas exports.
With Russia’s falling trade surplus, the iShares MSCI Russia Capped ETF and the Direxion Daily Russia Bull 3X ETF have fallen 16.6% and 60.9%, respectively.
Gazprom PAO is closely related to the geopolitical tensions in Turkey. Instability in Turkey raises questions about the gas pipeline from the Middle East.
The growing ties between Iran and Russia may be based on lower crude oil prices. North America is also not a significant market for Russian energy exports.
Geographically, Iran is between the European and Asian gas markets. Both Europe and Asia consume significant portions of the world’s natural gas production.
The new leadership in Tehran that came to power in 2013 was mostly elected on economic promises. Soon after, it attempted to normalize ties with the US.
In its recent outlook, OPEC stated that crude may not reach $95 by 2040. The fiscal break-even cost for different OPEC countries is more than $70 per barrel.
North America accounts for a small portion of Russia’s energy exports. Mining energy-producing minerals attracted 14.7% of the total fixed capital investment in 2014.
Saudi Arabia’s direct oil export through the sea is possible in two ways, one is through Bab el-Mandeb, and the other runs parallel to Iranian water boundaries.
According to Markit, Russia’s manufacturing PMI (purchasing managers’ index) declined by 1.4 points and came in at 48.7 in December, as compared to 50.1 in November 2015.
Yemen has been destabilized by Houthis fighters. Iran supports the fighters on religious and political grounds. Yemen is a small oil-producing country.
The decline in oil prices is a result of the price war between US shale oil producers and OPEC, where each is pumping oil into the market—leading to oversupply—in an attempt to retain market share.
Venezuela accounted for 17.5% of the world’s total proven crude oil reserve in 2014. According to a study by BP, Venezuela’s break-even cost is ~$23.5.
Like Brazil (EWZ), Russia (RUSL) (ERUS) is also struggling with high inflationary pressure. For the September quarter, Russian GDP (gross domestic product) fell 0.57%.
Iran’s economy has been crippled due to sanctions. Iran accounts for 9.3% of the world’s total proved crude oil reserve. It’s one of OPEC’s leading producers.
Russia’s presence in Syria is a threat to Saudi Arabia. There’s already cut-throat competition in the crude oil market. This increases the geopolitical tension.
Geographically, Iran is between the Europe and Asia’s gas markets. Iran could be a potential supplier to China (FXI) through Pakistan and India (INDY).
Saudi Arabia is an important ally for the US (SPY) in the Middle East. Saudi Arabia is also a strategic point to fight against terrorism in the Middle East.
BP’s (BP) statistical review shows that OPEC (Organization of the Petroleum Exporting Countries) accounts for 71.6% of the world’s total proved crude oil reserves.
Russia accounts for about 1.8% of the world’s GDP, and manufacturing activity accounts for ~15% of Russia’s GDP. Russia’s manufacturing PMI declined slightly to 50.1 in November, compared to 50.2 in October.
experts feel that OPEC is experiencing trade challenges with Russia in Asia due to crude’s falling prices, narrowing profit margins, and geopolitical issues.
Indonesia is looking for a long-term strategic alliance to support the demand of crude oil for its economy. Since 2003, Indonesia has been a net importer of oil.
As John McCain has stated, “Russia is a gas station masquerading as a country.” Today, Turkey shooting down the Russian fighter jet has set the equation.
Because of the supply glut in oil, prices fell steeply, affecting energy stocks and Russia’s GDP growth rate. Oil is currently priced at ~$42 per barrel.
According to the Federal State Statistics Service, Russia’s industrial production index (IIP) fell to 3.7% in September, compared to a fall of 4.3% in August 2015, YoY.
Although Iran’s return to the oil market won’t lower oil prices immediately, Russia (RSX) will have to take measures against the subsequent fall in oil prices.
The Russian ruble owes its strength to tax payments that exporters will make this year. The exporters are required to convert their earnings in foreign currency into rubles.
Industrial production in Russia declined by 4.8% in June on a year-over-year basis. The Russian equity–tracking VanEck Vectors Russia ETF (RSX) was down 1.6%.
Industrial production in Russia declined by 5.5% in May on a YoY basis. The Russian economy has seen a slowdown over the past year amid a global drop in oil prices.
In what was perceived as positive news by investors in the Russian economy, the Central Bank of Russia cut its key interest rate by 100 bps to 11.5% on June 15.
