Oil shock: that will bring down the price of a barrel


Нефтяной шок: что обрушит цену на баррель

New year oil market opened the next jump of the prices for black gold. In the Wake of mass protests in Iran quotes at some point reached $68 per barrel Brent for the first time in two and a half years.

This growth was a continuation of the rally last December. The news about the failure of facilities in the USA and the explosion on the oil pipeline in Libya broke up quotes to $66 per barrel. But, according to many experts, the fundamental reasons for growth in oil prices no.

Bombing in Libya and the impact of reduction of deliveries on the British pipeline Fortis on the oil quotes will be much weaker to maintain the current price level already in the beginning of 2018, the Director of the analytical Department of “Golden Hills — Kapital AM” Mikhail Krylov.

“This means that the price of oil could drop sharply on expectations of speculative participants in commodity exchanges in relation to the total supply,” he notes.

The fundamental reasons for rise in prices there, agrees Director of the group on natural resources and commodities, Fitch Ratings Dmitry marinchenko. The increase in shale oil production next year should broadly cover the growth in global demand and production in other regions, including in OPEC countries, should remain more or less stable, including the recent extension of the agreement OPEC+ to the end of the year, he said.

The international energy Agency (IEA) in its annual report World Energy Outlook 2017 noted that global oil demand in 2018 will grow by 1.3 million barrels per day compared to the current year and will be for 98.9 million b/d.

Oil supplies from countries not belonging to OPEC, will increase by 1.6 million b/d, while production of shale oil in the US in 2018 will increase by 870 thousand b/d.

The expectations of the countries-exporters of oil are about the same — OPEC expects 2018, the demand at the level of 98.45 million b/d. However, the growth in supply from countries outside the cartel, OPEC is projected at 990 thousand b/d — up to 58,81 million b/d.

A delicate balance

The rebalancing of the oil market — the main task, which is the third year they put before themselves major exporters of “black gold”.

In November 2017 24 oil-producing countries — OPEC members and States not members of the cartel, decided to prolong a historic deal on the reduction of the total oil production of 1.8 million barrels per day before the end of 2018.

This mechanism for the settlement of the market was used in the end of 2016 and have since proven their efficiency quotes for the year increased from $40 to $60 per barrel.

Next year will be turbulent for the oil market, but this does not mean that the price will change a lot, % draws attention to the head of portfolio managers BCS Maxim Dvoeglazov. Countries-exporters of oil has made quite a convenient solution: they extended the agreement, but at the same time said that in the middle of the year you can view them — every investor in this statement will hear what he wants, he said.

The fragility of the transaction OPEC+ — the main risk to the current oil prices, says marinchenko. At the same time Russia this deal today need less than Saudi Arabia. There is a risk that it will be revised in mid-2018 as the member countries of the agreement can be different views on the evolving balance of supply and demand.

A sharp exit from the transaction may bring to the market more than 1 million barrels per day of “extra” oil that could lead to a sharp drop in oil prices from the current level, the expert believes.

Before making its decisions, OPEC+ consults with global hedge funds and is doing everything to keep acceptable by the price level roughly $60 per barrel, said Dvoeglazov. It is possible that now the price of oil was somewhat overpriced for OPEC+, so the comments were very restrained. Whether OPEC+ next year to have the same effect and will the organization to change its policy, we will see closer to the middle of next year, predicts expert.

Shale threat

The main threat to oil, and this year will come from overseas, says the head of expert group VETA Dmitry Zharskiy. The same view is shared by most Russian and foreign analysts and experts.

In its last report, OPEC called oil shale production in the U.S. “one of the main factors of uncertainty on the world oil market to 2018”.

The 2014 crisis mostly began due to the strong production growth in the United States, reminds Dvoeglazov. Now a leading shale companies say they are willing to aggressively increase production but to say is one thing, but how it will actually be seen in the reports.

At average prices of $50-60 per barrel, shale oil production could grow by 1 million barrels per day in 2018 (year-on-year). At higher oil prices, production in the US could grow even more that can unbalance the market, says marinchenko.

Many analysts warn that strong growth in US production effort of OPEC+ can evaporate and the oil will return to $40 a barrel.

Currently, the share of shale oil accounts for more than 60% produced in USA “black gold”. According to the energy information Administration of U.S. Department of energy (EIA), at the end of 2017 the average daily oil production in the country will amount to 9.2 million barrels, and in 2018 — 10 million b/d.

This is the level of Saudi Arabia (the country produces just over 10 million b/d). There is not far to the Russian indicators (to 10.5 million b/d ), especially in the coming years in Russia, as expected, the drop in oil production in existing fields will be faster than the increase due to new deposits.

Many existing fields in Russia, particularly in Western Siberia, has entered into a natural phase of decline, the situation is exacerbated by the sectoral sanctions imposed by Western countries, which limit access to technology enhanced oil recovery, said the expert of the Energy center business school SKOLKOVO Catherine Grushovenko.

In addition, after the introduction in 2014 of sanctions against Russia was postponed some projects on the Arctic shelf and development projects of shale oil, reminiscent of Grushovenko.

Apparently, oil production in the U.S. will grow faster than the demand for the black gold. Since, in General, the domestic market of the United States looks quite rich, I think that with the volume of production will grow and export oil from the United States, which is only for 9 months of current year has increased by almost 1.5 times, says zarsky.

Provided that the growth of demand for oil is 75% due to demand from the two largest economies — the USA (the forecast demand growth of 0.5-0.6 million b/d) and China (an increase of 0.4 million b/d), while the first cover the increase in demand through its own production, and second because of the “recession in Chinese” may slow down to increase demand, to say that while maintaining the stable growth of production, the market will break out of the current crisis of overproduction until the end of 2018, not worth it, the expert believes.

“In my opinion, over the next year oil prices will fluctuate in a wide range of $54-65 per barrel, largely change in the value will depend on the performance by the parties to the agreement on controlling the production growth of its obligations, as well as from the appetites of the US,” he adds.

The middle East knot

But the prices can turn up instead of down. The reason is traditional — real and probable conflicts in the middle East, a key oil-producing region of the world. The beginning of the year with protests in Iran, another confirmation. A serious crisis can send quotes to far for $70.

On the dynamics of oil prices, a strong impact will be providing the factors of geopolitics and economy, draws the attention of the head of operations on the Russian stock market IR “freedom Finance” George Vashchenko.

The middle East remains the region with the tense situation, at any moment could spark conflict or to occur anything, to predict events in this region is very difficult, but they need to be ready, agrees Dvoeglazov.

In 2017 the middle East region has repeatedly made major adjustments to the parameters of oil prices. Wave growth caused, in particular, the independence referendum in Iraqi Kurdistan and the subsequent auction of Erbil with Baghdad for spheres of influence, the threat of new sanctions against Iran, the arrest of the Saudi princes. In 2018, analysts do not rule out new developments in the region that can “swing” global trends in one direction or another.

For example, the internal political conflict in Saudi Arabia and the foreign-policy scandal involving that country and other States led last year to the increase of average prices at $7 per barrel, or 12%, said Georgy Vashchenko.

Mikhail Krylov also reminds us that the oil market will influence also the stability of the transport via pipelines USA and the situation in Venezuela and Colombia. Also how important the export of Russian raw materials in the East and the chartering of the fleet for Intercontinental traffic.

Additional risk factors will remain a civil war in Africa and the dynamics of the situation in Saudi Arabia,

but the Russian oil market have to be ready to cyclical deterioration in economic conditions in the people’s Republic of China and the increasing significance of country factors in the negotiations, the expert warns.

The main players in the market by suppliers are Russia and Saudi Arabia as well as Iran, emphasizes Dvoeglazov.

Also, the expert notes, on prices in 2018 will be a serious impact to provide monetary policy of the fed.

Next year the fed will be more aggressive to release the balance gained from years of quantitative easing, in addition to this planned rate increase. These actions can increase the value of the dollar in the world and, consequently, affect the price of oil, he warns.

The price spread rises slightly: the minimum level could be support at $50 per barrel and resistance at $70 per barrel, he suggests.

In this predictive evaluation (plus or minus) most of the respondents agree experts. The Russian government expects that in 2018, the price of oil will not undergo major changes.

“Oil prices will be in the limits that are now seeing,” said in late December, Russian Finance Minister Anton Siluanov the TV channel “Russia 24”. While the budget includes the price of Urals oil at $40 a barrel.

In early December, in an online interview “Газете.Ru” the Minister of economic development of Russia Maxim Oreshkin said that the price of oil will be maintained above $50 per barrel in 2018.

The price of oil will be approximately in the range of “above $50 and below $60 per barrel,” said the Minister.


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