Resurgent Ruble Boosts Oil Shares

APCentral Bank Chief Sergei Ignatyev arriving for G7 talks in Rome on Friday.��
The ruble was the savior of the Russian equity market last week as a 4.2 percent weekly gain against the dollar gave a much-needed boost to the country's battered oil stocks.

The ruble rose 4.46 percent to trade at 39.09 against the dollar/euro basket, its largest weekly percentage gain since the basket's present composition was set.

The ruble benefited from the Central Bank's decision to reduce liquidity by raising interest rates at its weekly one-day repo auctions.

"A lot of people closed short positions on the ruble, and the reduction of pressure on the ruble has given a boost to the equity market," Natalya Orlova, chief economist at Alfa Bank, said Friday.

"Many of the big banks like VTB and Sberbank had short positions on the ruble, and they are trying to support the government by reversing them to protect the 41 level," she said.

Russia's ruble-denominated MICEX Index posted gains on three of the five trading days, gaining 11.6 percent, or 76.12 points, to close at 732.32 points on Friday.

The dollar-denominated RTS Index rose four of the five days and closed at 624.2 points, up 19.8 percent or 103.3 points for the week.

Energy giants Rosneft, LUKoil and Gazprom were the principal beneficiaries of the ruble's gains, and Rosneft soared after Prime Minister Vladimir Putin proposed modest tax breaks on east Siberian oil fields.

Rosneft rose 16.4 percent to 130.1 points, LUKoil increased 10.2 percent to 1267.4 points and Gazprom gained 8.5 percent, closing at 126.5 on Friday.

"Russian oil companies are the Russian equity market," said James Beadle, chief investment strategist at Pilgrim Asset Management. "If there's any driver to save the Russian equity market, it's the oil companies that benefit first."

Another market mover was Polyus Gold, which fluctuated alongside speculation that VTB would seek to acquire a stake of up to 50 percent.

Polyus shares plummeted 19.7 percent Thursday as investors cashed in on gains of more than 25 percent this month.

The Federal Anti-Monopoly Service tentatively turned down VTB's request on Thursday because it had not specified who the shares' sellers were, and Polyus gained back 10.7 percent on Friday, ending the week at 1124.4, down 10.6 percent for the week.

Analysts said it was unlikely that the ruble had found its bottom and that the Central Bank would likely have to revise the trading band's upper level of 41 if oil prices refused to recover.

"Ultimately, everything depends on the price of oil," Beadle said. "If Brent goes below $40 per barrel, the Central Bank's not going to make any effort to defend the ruble whatsoever. It's going to immediately change the level of defense."

The ballooning deficit may also influence the Central Bank's plans.

Top Kremlin economic aide Arkady Dvorkovich said the budget deficit could reach 8 percent Wednesday, a higher forecast than the 6 percent figure he had given just a few days earlier.

Orlova said the pressure of the fiscal deficit on the ruble could soon erase the Central Bank's counterspeculation measures.

"I think we can expect that quite soon, maybe by June, there will be a new round of pressure and a new round of speculation on the ruble," she said. "The new fiscal deficit forecast is much, much worse than initial expectations .