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. Last Updated: 07/27/2016

RTS Tops 2,000, But Do Not Pop the Cork

The bulls rode in last week on the oil price, propelling the RTS index on Friday past the elusive benchmark of 2,000 points, but analysts said it was too early to celebrate.

Much of the exuberance came at the end of the week, after a report from the International Energy Agency said Thursday that global output stood at three-year lows, putting upward pressure on the oil price. In New York it jumped to $64 per barrel -- $9 per barrel higher than the government's 2007 forecast -- where it stayed until Friday's close.

Rosneft (ROSN) leapt 6.3 percent on the news and had gains of 8.2 percent for the week.

But that was the sector's only major rally, and considering the four-week strength of commodity prices, analysts said the oil and gas firms should be doing better.

"The momentum is not coming from commodity prices as much as it used to," said Erik Mielke, head of emerging Europe energy at Merrill Lynch in London. "Right now there just isn't a lot of excitement around this sector."

High operating costs and an overwhelming tax regime have made it difficult for oil firms to improve their earnings, Mielke said, and at a time when global confidence in the sector is shaken, it is hard to bring investors back around.

In the year to date, all of Russia's 10 biggest oil and gas firms except Tatneft (TATN) are in the red, with most of them down more than 10 percent. Analysts were quick to point out that much of the oil-price momentum of recent weeks was coming from one-off events, such as pre-election unrest in Nigeria and Wednesday's terrorist bombing in Algeria, both OPEC member countries.

And Alfa Bank noted the double-edged nature of expensive oil. By urging a slowdown in the global economy with which Russia is intertwined, "higher oil will hurt Russian equities as much as other emerging equity markets," the bank wrote Friday in a note to investors.

It has taken 17 months for the RTS to gain the 1000 index points that doubled its value. Although this period has been defined by peaking oil prices, which averaged $67 per barrel last year, the banking sector had as much to do with the index's growth as oil and gas firms, a Deutsche UFG study said Saturday.

Sberbank (SBER), so far the only proxy for the banking sector, contributed 303 index points since mid-November 2005, the same as the entire hydrocarbons sector, which makes up around 60 percent of the total value of the market, the study found.

Two of Russia's main brokerages upped their earnings forecasts for Sberbank last week -- taking the target price of Russia's biggest lender to $4411 at Renaissance Capital on Tuesday, and $5250 at UBS on Friday. The stock saw weekly gains of 7.2 percent to close at $3985 on the RTS.

Out of the 1000 points gained since the end of 2005, the electricity sector gets credit for 133 points and telecoms for 85 points, the Deutsche UFG report said.

Still uneasy from last month's slump, which Renaissance Capital called "a warning signal," Russia's investors will now be looking to these emerging sectors for hope.

On Wednesday, the Fed called U.S. inflation levels "uncomfortably high," a phrase interpreted by many analysts as a signal of rate hikes to come.