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17 Jul, 2008 03:22

Oil price falls wont affect Russian economy

Oil prices have fallen sharply for the second straight session, in a sign that markets are becoming more volatile. Experts point to fears of an economic slowdown, especially in the U.S. But while the world’s biggest economy is reeling – Rating

Fears of an economic slowdown in the US keep kept oil markets volatile on wednesday – with a sharp downward movement of 6 dollars a barrel for the second day running. At around 135 dollars, it’s a sign the markets are not sure strong levels of demand can persist.

However, Ron Smith of Alfa Bank says long-term, fundamental demand for oil remains strong.

If this trend continues in the next ten days or two weeks we should see another run at higher prices. At the same time there is reason to believe this might be a bubble, and if this trade ever turns, if the hedge funds and everyone else who’s piled into suddenly start to think that prices are going to go down then that will become a self fulfilling prophecy and they will go down.

Russia, the world’s second-biggest oil exporter, remains little affected for now. With petro-dollars flowing into the country, any hope that lower prices will slow inflation are also vague. Inflation has topped 9 per cent so far this year. But the falls in the oil price of this week wont have an immediate impact on inflationary pressure according to Roland Nash of Renaissance Capital.

Its to small a move to have a big impact on the inflation rate in the short term. You need to see the oil price fall for a considerable period of time.

While the clouds continue to gather for the leading developed economies, investors are increasingly looking to Russia as a safe haven. So the decision by ratings agency Moody’s to lift its investment rating of Russian government debt is a timely signal to investors.