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. Last Updated: 07/27/2016

Stocks Trip on the Starting Line

The local markets were given a rude awakening in the first two days of January trading, with Russia's main index falling 8.1 percent, the biggest and most sudden drop since the market tanked in June last year.

Analysts blamed the price of oil, which fell by about 9 percent during the holiday lull. Investors returning to work Tuesday were suddenly hit with two weeks of oil-price corrections. The first thing they did was sell, hacking 6.4 percent off the RTS index Tuesday and another 1.7 percent Wednesday.

"It's a little bit crazy," Alfa Bank strategist Erik DePoy said. "Our first day back and the market crashes."

Russia's blue chips led the plunge. LUKoil, Russia's biggest oil supplier, had 11.7 percent wiped off its share value this week, while Norilsk Nickel, one of last year's best performers, took a 13.7 percent nosedive Tuesday, recovering 5.5 percent in the next day's trading.

Several factors have been squeezing the oil price, which this week dropped below $55 per barrel, its lowest point since June 2005.

The first has been unseasonable warmth in the northeast of the United States, the world's biggest consumer of oil. Other parts of the country have seen a typically frosty winter, but because New York is a major hub of commodities trading, the sunshine in Central Park has made investors overestimate the drop in demand for heating oil, DePoy said.

As consumers burn less oil, stockpiles continue to grow ahead of the U.S. peak driving season, sparking fears that the prices may continue falling well into the year, analysts said.

The Organization of Petroleum Exporting Countries also failed to keep its promise of cutting oil supplies by 1.2 million barrels per day by the end of 2006.

It has only managed to pare half a million off of its daily output, according to an Alfa Bank report released this week.

OPEC ministers held emergency talks Wednesday to discuss strategies for bringing the oil price back above the cartel's target price of $60 per barrel. Russia's federal budget for 2007 is based on oil prices staying above this level.

The final factor pressuring the oil price is Russia's standoff with Belarus, which has had its oil supplies cut this week, threatening supplies to Europe.

Though drastic, this week's correction will most likely be short-lived, analysts said.

"The beginning of trading, even if unpleasant, is fully understandable," said Konstantin Chernyshev, head of research at UralSib. "It will not last more than several days."

Russia's flexible system of export tariffs on oil will help soften the blow from volatility on the oil market, Chernyshev said. As the global oil price drops, so do the tariffs Russian companies pay for exporting oil. This helps the firms offset their losses in times of sinking prices.

Noncommodity markets may also help the economy avoid a major downturn, especially the retail, telecom and electricity sectors, Chernyshev said.

The last time Russian stocks saw such a plummet was June 13 of last year, when fears of a global recession caused the RTS index to fall 9.4 percent. The index went on, however, to climb 71 percent last year, reaching an all-time high.