Energy Prices, Foreign Exchange Rates, and Inflation in Russia

Annual Average Brent and Urals Prices, USD per barrel Source: Platts.

The observed oil surplus in 2014–2016 gave way to shortages in 2017 caused by the growing demand for oil and the deal to curb oil output, reached by OPEC and 11 non-members. According to the International Energy Agency (IEA), shortage in the oil market totaled 0.4 mmb per day in 2017. Since June 2017, oil prices have been showing a slight upward trend.

As a result of the oil shortage, the annual average Brent price in 2017, as according to Platts, was up 24.3% to USD 54.3 per barrel, compared with USD 43.7 per barrel in 2016. In 2017, the annual average Urals price increased by USD 11 per barrel compared with the 2016 price of USD 53.1 per barrel, a 26.1% rise year-on-year.

An improving global commodity market environment and growing Russian exports drove an increase in Russia’s export income. According to the Bank of Russia’s data, Russian exports (according to the Balance of Payments methodology) grew by 25.2% year-on-year in 2017, from USD 281.8 bln to USD 353.0 bln. Crude oil exports were up 26.6% to USD 93.3 bln; petroleum product exports were up 26.3% to USD 58.2 bln; natural gas exports up 22.0% to USD 38.0 bln; and LNG exports up 9.5% to USD 3.2 bln. Crude hydrocarbons and petroleum products accounted for 54.6% of total exports in 2017.

Russian Exports, USD bln Source: Central Bank of the Russian Federation.

An increase in export income had a positive effect on the ruble exchange rate despite ongoing financial sanctions. According to the Bank of Russia, the annual average nominal USD/RUB rate was down from RUB 67.03 per USD in 2016 to RUB 58.35 per USD in 2017, thus the ruble appreciated against the US dollar by an average of 14.7% year-on-year.

Changes in Annual Average Nominal Exchange Rates of Oil-Exporting Countries’ National Currencies to USD in 2017, % y-o-y “+” indicates appreciation of a national currency against USD; “–” indicates depreciation of a national currency against USD. Sources: International Monetary Fund, World Bank, the Central Bank Bank of the Russian Federation.

The nominal USD/RUB rate was down from RUB 60.66 per USD as at year-end 2016 to RUB 57.60 per USD as at year-end 2017. The ruble appreciated by 5.3% year-on-year.

Changes in Nominal Exchange Rates of Oil Exporting Countries’ National Currencies to USD in 2017, % y-o-y at year-end “+” indicates appreciation of a national currency against USD; “–” indicates depreciation of a national currency against USD. Sources: International Monetary Fund, World Bank, the Central Bank of the Russian Federation.

Inflation in 2017 (year-on-year as at December 2017) was 2.5% (5.4% in 2016), 1.5 percentage points below the 2017 target of 4.0% set in the Monetary Policy Guidelines for 2017–2019 published by the Central Bank of the Russian Federation. In 2017, the annual average consumer price index was 3.7% (7.1% in 2016). The inflation slowdown in 2017 was supported by the policy of the Central Bank of the Russian Federation, as well as by the growing nominal exchange rate of the Russian ruble to the currencies of Russia’s key trade partners, and an increase in agricultural production. According to the Bank of Russia’s forecast as at 22 November 2017, inflation in 2018–2020 will be at 4.0%.

Average Nominal USD/RUB Rate, RUB per USD Source: Central Bank of the Russian Federation.
Inflation in Russia, % y-o-y as at December Source: Rosstat.

In 2017, producer prices were up 8.4% (year-on-year as at December 2017) (7.5% in 2016). In 2017, the annual average producer price index was 7.6% (4.3% in 2016). According to the Ministry of Economic Development forecast as at 27 October 2017, the producer price index will be 2.5% in 2018 (year-on-year as at December 2018).

In 2017, oil companies’ transportation costs in Russia grew following an increase in tariffs. As of 1 January 2017, PJSC Transneft’s rates for oil transportation via trunk pipelines increased by 3.5%, and 4.0% indexation was applied to export tariffs for the Eastern Siberia – Pacific Ocean pipeline to China and the Kozmino oil loading port.

As of 1 February 2017, transit tariffs for oil transportation via the Republic of Belarus increased by 7.7%.

As of 1 January 2017, railroad transportation tariffs increased by 4%, and an additional 2% indexation was applied in January 2017 to the December 2016 tariff.