Oil Prices and Their Impact on Equities and the Ruble

​​A 15% drop in Brent prices over a short period prompts a revaluation of discounted cash flows (DCF) in the oil and gas sector.

​Rosneft and Tatneft shares traditionally show high beta to oil prices. The emotional 7% sell-off is a standard market reaction to revised revenue and dividend expectations.

​The MOEX Index's resilience at 2750 points despite falling oil is due to financial sector gains. This indicates declining correlation between commodities and domestic stories (Sber, VTB), typical of closed or transforming markets where internal liquidity and dividend hopes drive performance.

​Meanwhile, the oil-ruble link has lost its linearity under current conditions.

​A pause in budget rule operations reduces national currency volatility, as the state no longer absorbs excess or shortfalls in oil dollars as before.

​The Central Bank's modest rate cuts signal persistent tight monetary policy. The high key rate bolsters ruble demand, enhancing its resilience to energy price declines.

​Moreover, optimism about a rebound from 2750 points without considering long-term fundamentals seems overstated.

​The oil market is highly sensitive to Iran-related news. Yet the slide from $110 to $95 isn't mere technicality—it's a return to fair value assuming de-escalation. Prolonged talks could stagnate Russia's commodity sector.

​Sber and VTB gains on dividend hopes are justified. With double-digit yields, these stocks rival OFZ bonds amid inflation fears. Still, bank profits derive from overall economic health, which hinges on export revenues.

​A short-term dollar return to 80 rubles appears as logical technicality, but with oil above $90, no fundamentals justify a deep ruble collapse. The trade balance remains in surplus.

​Thus, the market is shifting from "growth on geopolitical risk" to "fundamental value assessment." Investors should eye domestic-demand firms, as commodities stay hostage to volatility and foreign policy deals.

Author: Candidate of Economic Sciences, Associate Professor at the Department of World Economy and International Finance, Financial University under the Government of the Russian Federation Natalia Ivanovna Chovgan.