Russian ADRs Extend Bear Market as Oil Below $50 Dims Outlook

  • Oil oversupply jumped to 2 million barrels a day, Goldman says
  • Russia depends on oil and gas for half of its budget revenue

Russian stocks in New York dropped, extending a bear market selloff, as a widening ruble rout and a plunge in oil prices further eroded investment sentiment.

The Bloomberg Index of the most-traded Russian stocks on the U.S. exchanges declined 0.7 percent in New York to settle at 50.71 after plunging to a seven-month low earlier in the day. It has lost 24 percent since an April high, meeting the common definition of a bear market. Gazprom PJSC tumbled to a six-month low, while OAO Lukoil declined to the lowest since January.

The rout in Russian stocks is accelerating as Brent crude, the benchmark oil grade used to price Russia’s main export blend, has fallen more than 20 percent amid a global glut and as Goldman Sachs Group Inc. forecasts an extended oversupply. The decline in oil, which together with gas makes up about half the nation’s budget revenue, has damped speculation Russia’s first recession since 2009 will be milder than projected.

“For the Russian market, the slump in oil prices inevitably means a slowdown in business activity, the acceleration of outflows, and a general deterioration of investment sentiment,” Sergei Pigarev, an analyst at Rye, Man & Gor in Moscow, said by phone on Thursday. “With the level of dependency on the oil revenue, the slump in Brent and the decline in the ruble produce a negative outlook on the Russian market among foreign investors.”

Oil Slump

Russian economic growth has been hampered by falling energy prices and sanctions linked to the Ukraine conflict that curbed international financing. Global crude oversupply has risen to 2 from 1.8 million barrels a day in the first half of 2015 and storage may be filled by the fall, forcing the market to adjust, Goldman Sachs analysts including Jeffrey Currie said in the report dated Thursday.

Brent crude fell 1.4 percent to $49.52 a barrel on Thursday, extending its drop from this year’s high in May to 27 percent. The ruble, which rallied the most in the world earlier this year, dropped 0.9 percent to 64.05 per dollar. The currency will probably trade at 60 per dollar at the year-end, Pigarev said.

Gazprom fell 2.1 percent to $4.36. The stock that rose 36 percent this year through May, is down 3.8 percent in 2015. Lukoil slid 2.2 percent to $38.89 after falling 8.9 percent in July, the most since December.

The Market Vectors Russia ETF, the biggest exchange-traded fund tracking the nation’s stocks, fell 0.7 percent to $16.47. Futures on the RTS Index expiring in September added 1 percent to 82,510 in U.S. hours.

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