Azernews.Az

By Bloomberg

OAO Lukoil fell to a five-week low, leading a drop in U.S.-traded Russian energy stocks as oil prices declined and separatists in Ukraine traded blame with the government over cease-fire violations.

Lukoil, the country’s second-largest oil producer, slid 3.5 percent to $43.69 in New York after dropping 3.7 percent in London. A Bloomberg gauge of U.S.-traded Russian stocks fell 2.1 percent, reducing this year’s gain to 14 percent.

Stocks retreated as oil dropped for a fifth day, the longest streak of losses since mid-December, amid signs a global supply glut will persist. The Bloomberg Russia-US Equity Index had advanced 25 percent this year through March 5 as Brent crude stabilized at around $60 a barrel. It settled at $56.39 Tuesday. A military spokesman said insurgents broke the terms of a peace accord in eastern Ukraine, while the rebels accused the government of firing on their positions.

“There are concerns oil can go lower before recovering later this year, and risks related to the Ukraine crisis are still there,” Ildar Davletshin, an oil and gas analyst at Renaissance Capital, said by phone from Moscow Tuesday. “If the Ukraine crisis worsens and leads to new sanctions against Russia, that would mean selling pressure on all of Russian oil and gas companies, including Lukoil.”

The U.S. and its allies, who say President Vladimir Putin is supporting the pro-Russian rebels in Ukraine with hardware, cash and troops, have imposed sanctions including export bans and international financing restrictions. Those measures, combined with a decline in oil, the country’s biggest export, are pushing the economy toward its first recession since 2009.

Ukraine Conflict

A U.S. State Department official told a Senate committee Tuesday that Russia had sent new weapons to the separatists, while German Foreign Minister Frank-Walter Steinmeier said after talks in Bulgaria that the terms agreed to under the cease-fire accord are “only the first steps in calming down the situation.” The European Union’s foreign policy chief said last week that sanctions won’t be lifted until the situation improves and further penalties are possible if needed.

The decline in the Bloomberg gauge of U.S.-traded Russian stocks pushed its 14-day relative strength index to 44, the lowest level since late January. An RSI of 30 or lower is a signal to some technical analysts that a security is poised to rebound.

“It’s hard to find a reason for optimism on Lukoil, as well as other Russian oil companies, when Brent falls and sanctions are here to stay for now,” Dmitry Loukashov, an oil and gas analyst at VTB Capital, said by phone from Moscow Tuesday. “Lukoil is a part of the overall trend of decreasing interest to the Russian energy companies.”

Analyst Ratings

Two of 19 analysts covering Lukoil’s London-listed shares cut their recommendation from buy to hold last week after the company reported a 39 percent drop in annual profit. The stock has a total of 13 buy ratings, the least since since May, data compiled by Bloomberg show.

Lukoil’s London-traded shares sell for 5.5 times projected 12-month earnings, a 30 percent discount to an average multiple of 7.8 for peers on the MSCI Emerging Markets Energy Index.

The Market Vectors Russia ETF, the biggest U.S. exchange- traded fund that holds Russian shares, declined 3.8 percent to $16.26, trimming its gain this year to 11 percent. United Co. Rusal, a Moscow-based aluminum producer, dropped 0.4 percent to HK$4.97 in Hong Kong trading as of 12:50 p.m. local time.

“What drives the sentiment on the Russian oil stocks at the moment is that there is an overall impression that oil had gained too far and too quickly over the past couple of months,” Renaissance Capital’s Davletshin said. “And it seems to be due for correction near-term.”