Oil Boost For Russia
Front-month Brent Crude was testing key resistance at US$120/bbl on the morning of February 17, buoyed by rumours that Iran was set to cut off oil supplies to Europe, and with a resolution to the Greece crisis inching toward fruition.
The key upside level for Brent is US$127.02/bbl, which represents the April 2011 high. A move above this level would be greatly positive for oil prices, with a move to the US$140.00/bbl region last seen in 2008 becoming a real possibility. Technically, any sustained decline would find strong support in the US$105-110/bbl area.
We expect tight supply and ongoing geopolitical threats to help keep oil prices resilient in the coming months. Western consumers would suffer from higher oil prices, but exporters would benefit, with Russian assets, in particular, already looking extremely attractive on both a technical and valuation basis.
We are bullish towards Russian RUB-denominated government bonds and Russian equities, as the RTS index bounced nicely off major support at 1,200 in October. Politics is a risk ahead of the March 4 presidential elections, and the RTS is slightly overbought, but the fundamentals and technicals are aligning nicely for a run to 1,800 and beyond in the coming months (from 1,652 currently).