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. Last Updated: 07/27/2016

Surging Oil Lifts Energy Stocks

The surge in the price of oil to close on $100 per barrel last week sparked a long-awaited rally in Russian energy stocks.

But fears that oil would break through into triple figures by the end of the week eased as oil firms said they had restarted production in the North Sea after bad weather had earlier resulted in two shutdowns.

Comments from U.S. Federal Reserve chairman Bernard Bernanke on Thursday that the United States was heading for a slowdown also helped ease demand for energy commodities.

Nevertheless, oil prices continued to hover near all-time highs Friday, with crude oil for December delivery up 0.9 percent to settle at $96.32 per barrel on the New York Mercantile Exchange. On Wednesday, crude futures peaked at $98.62.

Analysts were not predicting any strong reversals in the short term, however.

"We think the oil price is responding to fundamentals: a tight market and very strong demand," said Kevin Norrish, an oil analyst at Barclays Capital in London. "There doesn't seem to be any reason to expect the upward trend in the price to slow anytime soon."

In Russia, some analysts were predicting that a price above $100 would add to inflationary pressures, a sore point with the government, which has introduced populist measures to calm inflation, none of which seem to have had much effect.

The latest data from the State Statistics Service indicated that core inflation had risen by 2.1 percent in October, the highest month-on-month jump yet since it started publishing monthly numbers in 2003. In the year to date, inflation stands at 9.3 percent.

"The issue is that the government is trying to fight against the social consequences of inflation rather than inflation itself," said Julia Tsepliayeva, an economist at Merrill Lynch. "All these measures look quite populist but not very efficient."

For once, oil chips were making gains on Russian indices, although it was Gazprom, which has an oil play through its subsidiary Gazprom Neft, which dominated investors' hearts and minds this week.

"The stock that's been moving is Gazprom," said Erik DePoy, strategist at Alfa Bank. "The oil tax burden is just way too high ... and Gazprom is shielded from that. It has a lower tax regime on the gas side and benefits from the high price on the oil side."

Gazprom has been making headlines across a broad range of issues in the past couple of weeks. One of the key catalysts for the share price move, said Pavel Kushnir, an oil analyst at Deutsche UFG, was the confirmation earlier this month by Dmitry Medvedev, Gazprom board chairman and a first deputy prime minister, that the government was committed to bringing gas prices in line with market conditions.

Meanwhile, last week Gazprombank emerged as a bidder for a 25 percent stake in Imperial Energy, the London-listed oil producer that has had a number of run-ins with the Natural Resources Ministry's environmental agency this year.

On Tuesday, President Vladimir Putin presided over a landmark gas pipeline deal, bringing in Dutch energy firm Gasunie as a new investor into the Nord Stream pipeline project with a 9 percent stake. Gazprom holds a 51 percent stake in the project, which is key to the monopoly's plans to increase gas deliveries to Europe.

Tuesday also saw a meeting between BP chief Tony Hayward and Gazprom's Alexei Miller at a football match in Germany, prompting speculation that talks between the two were intensifying on a deal over TNK-BP. The meeting was the third recorded between the two men in the last six months and comes as the companies seek to hammer out terms over their partnership in the Kovykta gas field and a $3 billion global joint venture.

Citing industry sources, Reuters said Gazprom was in talks to buy into TNK-BP. On Friday, however, Gazprom said it would only consider starting talks once an existing lockup agreement between BP and its Russian partners expires, the agency reported.

State-controlled majors put in a good showing, with Gazprom rising 5.1 percent and Rosneft 3.9 percent on the week. Meanwhile, privately owned LUKoil failed to please, rising just 0.1 percent. Overall, energy stocks outperformed Russian markets -- a reversal of fortunes, as lagging oil and gas stocks have been the main factor behind Russia's underperformance in the emerging-market class this year.

UralSib noted that in the week to Nov. 7, Russia had attracted $61 million in investment flows, not far behind India with $70 million, but still behind China with $146 million and Brazil, investors' current emerging market of choice, with $307 million.

But just how long the oil-related gains will last is anyone's guess.

"We expect oil prices to stabilize at much lower levels from next year," Deutsche UFG's Kushnir said. "The performance is really short-term so far."

Both the RTS and MICEX indexes slipped back Friday, after bucking downward global trends earlier in the week.

Russia's benchmark RTS index fell back 1.1 percent Friday, but still closed the week up 1.52 percent at 2262.11 points, while MICEX fell back 1.4 percent Friday, edging up 0.63 percent on the week to 1891.27 points.