BOFIT Viikkokatsaus / BOFIT Weekly 2018/37

Despite a global rise in crude oil prices, the ruble has lost about 16 % of its value against the US dollar this year. Geopolitical factors account for most of the headwinds battering the ruble. Global markets reacted negatively and swiftly in early April after the US broadened its sanctions roster to include a number of major Russian enterprises and private individuals. August brought additional uncertainty due to the US announcement it might go ahead with further sanctions, heightened tensions between the US and Russia over Syria and Iran and the novel sanctions imposed after findings of the UK's Skripal poisoning investigation.

While the price of Urals crude oil reached 76 dollars a barrel at the end of August (up 13 % since the start of January this year), the rise in oil prices has been significantly larger in ruble terms. At the beginning of this year, a barrel of Urals went for about 3,900 rubles. By the end of August, its price had climbed 33 % to 5,200 rubles. Higher oil prices in dollars coupled with the ruble's devaluation are shown in the first half year earnings of Russian oil companies.

Rosstat statistics, for example, show total pre-tax net profits of oil companies were up by over 140 % y-o-y in the first half of this year. Russia's largest oil company Rosneft announced that its first-half result (EBITDA) improved close to 50 % y-o-y. Similarly, Lukoil earnings were up about 30 % in the first half. Thanks to higher earnings, the companies have announced major share buy-back programmes. Rosneft plans to spend 2 billion dollars buying back its own shares, while Lukoil expects to spend 3 billion dollars on its shares. Both Rosneft and Lukoil report paying down considerable amounts of debt in the first half of 2018.