RTS Futures Decline on Prospect Oil Prices Have Peaked: Russia Overnight

RTS stock futures dropped and OAO Gazprom slid the most in a week on speculation oil, Russia’s biggest export earner, has hit a peak.

Crude, which along with gas makes up about 17 percent of Russia’s economy, climbed to a two-week high yesterday and had its first weekly gain in three on concern tensions between Iran and the West will threaten shipments from the Organization of Petroleum Producing Countries’ second-largest producer. Bank of America Corp. trimmed its price forecast for Brent, the oil type that underpins Russia’s Urals crude blend, by $6 barrel on Dec. 2 on expectations a global slowdown will cut energy demand.

“We’re finally seeing the loss of some momentum following a giant $21 move in the price of crude since the end of the quarter, which more than any factor, created the momentum for Russian stocks,” Geoffrey Dennis, a global emerging-markets strategist at Citigroup Inc. in New York, said in a phone interview yesterday. “As oil has hit $100 a barrel, investors are likely thinking that crude has run its course for the moment.”

Futures on the dollar-denominated RTS index expiring in December fell 0.8 percent to 153,065 by 2:50 p.m. yesterday as the Bloomberg Russia-US 14 Index of Russian companies traded in the U.S. lost 0.6 percent to 99.88, paring last week’s advance to 10 percent. Gazprom, the world’s biggest natural gas producer, declined for the first time in five days and mobile- phone operator OAO Mobile TeleSystems (MBT) slipped the most in three weeks after taking on debt of a company that it acquired.

$100.96 Oil

Crude for January delivery climbed 0.8 percent to settle at $100.96 a barrel on the New York Mercantile Exchange, the highest settlement price since Nov. 16 and bringing its advance in the week to 4.3 percent. Oil prices in New York have jumped 27 percent this quarter, bound for the best quarter since the three months to June 30, 2009. The Bloomberg Russia-US 14 index has gained 16 percent in the fourth quarter.

Brent oil for January settlement increased 0.9 percent to $109.94 a barrel on the London-based ICE Futures Europe exchange yesterday, while Urals crude, Russia’s chief export blend, gained 1 percent to $110.59. Brent added 3.6 percent in the week and Urals 4.1 percent.

Gazprom (OGZPY), Russia’s gas export monopoly and the largest company on the nation’s 30-stock Micex index, fell 0.4 percent yesterday to $11.76, the biggest drop since Nov. 25. The American depositary receipts climbed 14 percent in the week, snapping two weeks of declines. Gazprom’s shares in Moscow gained 1.1 percent to 183.32 rubles, or the equivalent of $5.93. One Gazprom ADR represents two ordinary shares. Shares in New York have jumped 23 percent this quarter.

Duma Elections

Russian voters may inflict the biggest electoral setback for Prime Minister Vladimir Putin since 2003 in a parliamentary vote this weekend, spurring the former KGB officer to ramp up spending ahead of a presidential poll in March. Putin, who relinquished the presidency in 2008 because of a limit on more than two consecutive terms, said in September he would stand again, switching jobs with President Dmitry Medvedev.

Putin’s disapproval rating is the highest since he took office in 2000 and opinion polls signal a 65-seat reduction in his United Russia party’s representation to 250 of the 450-seat Duma, according to surveys by Russia’s Levada Center last month. The party is hemorrhaging support as voters recoil at stalling wage growth and the government’s failure to curb corruption.

“The fear is that if the results for United Russia are poor, that the government decides to embark on a more nationalist approach and increase expenditures, then the oil price dependency rises,” Kingsmill Bond, chief strategist at Citigroup Inc. in Moscow, said by phone yesterday.

MTS Debt Deal

Russia gets about 40 percent of its budget revenue from energy sales. Retail stocks would benefit most from increased government expenditure, Bond said.

ADRs of Mobile TeleSystems, known as MTS, lost 3.8 percent to $16 yesterday, the largest one-day drop since Nov. 9. The company’s shares on the Micex declined 1.9 percent to close at 209.02 rubles, or the equivalent of $6.76. One MTS ADR is equal to two ordinary shares. The ADRs climbed 3.4 percent in the week.

MTS acquired CJSC Sistema-Inventure, which owns 29 percent of Moscow City Telephone Network, for 10.6 billion rubles ($342 million), the Moscow-based company said in a Dec. 1 statement on its website. As part of the deal, MTS also agreed to repay 10.4 billion rubles of CJSC Sistema debt by the end of the year owed to AFK Sistema, CJSC Sistema’s former owner and the controlling shareholder in MTS, the statement said.

“While the price of the acquisition seems adequate, MTS had to take on a debt load equal to the purchase price, and this is concerning the investors,” said Kirill Bakhtin, an analyst at Moscow brokerage TKB Capital.

Lukoil Recommendations

OAO Lukoil (LUKOY), Russia’s second-largest oil producer, rose for the fourth day in five after Deutsche Bank AG and VTB Capital, the investment banking arm of the nation’s second-largest lender VTB Group, reiterated “buy” recommendations on the stock and Moscow brokerage Renaissance Capital maintained a “hold” recommendation.

Lukoil forecasted an average 3.5 percent increase in production during the next 10 years in a spending and strategy plan released on Dec. 1.

ADRs of Lukoil rose 1.2 percent yesterday to $55.46, posting a 7.5 percent weekly gain after four weeks of declines. On the Micex, Lukoil gained 0.1 percent to 1,705.50 rubles, or the equivalent of $55.11. Each of Lukoil’s ADRs is equal to one ordinary share.

VTB Capital set Lukoil’s 12-month target price at $136.30. more than three times its current level.

To contact the reporters on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net; Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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