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Saturday, March 10, 2018

Oil prices can surprise us in the near future

Federal budget for 2016 comes from the prices for oil of mark Urals blend at $ 50 per barrel. The fact that oil quotations are in no hurry to comply with this plan, many scares. In this regard, it is important to understand what we’re dealing with and how are oil prices, so make sure to tear my hair out and throw in the air cap are equally irresponsible.

You can and probably should argue with the thesis that if what is good for Gazprom or Rosneft is good for Russia. But true to another thesis: what is bad for Russia’s energy giants, has a negative impact on the development of the country, at least in the short term. Too important and their role is immense monopoly and differential rents that they mediate. The national security Strategy of the Russian Federation until 2020 stresses that “one of the main directions of ensuring national security in the economic sphere in the long term is energy security.”

The most speculative goods

“The period specified oil monarchies knowledgeable, smart and responsible Chinese leaders, expires in 2016”

In modern economic science there is no consensus on the question, whether hydrocarbon predictable the markets are. Research funded by OPEC’s elasticity of oil prices (that is, how interdependent dynamics of prices and production) are unable to identify stable patterns: in some cases, the lower prices led to production cuts, in some other – not led. The “historical volatility” (that is, an average standard deviation of past prices, based on historical data) provides no basis for believing that it will conform to future volatility related to the implementation of existing and expected risks, depending on changing political and economic situation, existing conditions, market liquidity, the dynamics of the ratio of supply and demand and so on. Quotes oil prices are changing every second, and production figures are published much less frequently, and it is difficult to imagine a situation in which at each moment of time the change in prices depends on the real situation and information leaks about the hold, and published three months ago industrial, financial or geological report.

But generally the volatility of oil prices depends on two types of reasons: on the one hand, they are related to the dynamics of supply and demand, on the other, are determined by the traders “paper in oil” futures contracts on oil and other derivatives. The second type of reasons includes the activity of a vast number of small investors exposed to the elements of the “herd” mentality, quickly into the panic or euphoria and it is believed that oil – “the most speculative of existing products”.

The world’s largest exporters and consumers of oil and the countries that are its largest proven superimage already talking about the fact that there is a vicious circle of speculation, generates volatility, and volatility, stimulating speculation. Meanwhile, the real major international oil flows difficult to trade speculators, marker grade of crude oil do not correspond to real classes traded on the physical market: for example, a mixture of Brent has a very small weight in the global turnover. Statistics show that high volatility of oil prices in the beginning of the XXI century is directly related to the increase of speculative transactions in futures markets.

So, current quotations for crude oil have little in common with traditional meaning of the ratio of supply and demand. It is believed that more than 60% today’s price is pure speculation, promoted by the trader banks and hedge funds, and stock exchange processes, oddly enough, is opaque, although they are governed by the system of Western banks (such as Goldman Sachs or Morgan Stanley) that have information who is buying and who selling oil futures.

In the end we get the situation that requires rejection of impressionism current oil prices in the medium and long term economic policy. Budget planning, investment decisions, projects the construction of new refineries and development of new fields of demand forecasting for 25-30 years and should not be held hostage to short-term interests of speculators who look to the future not even for a few days, and for a few hours (so-called intraday trading). “It is important not to lose the horizon of development, to avoid investment pause, said in this regard, President Putin. – You need to ensure that the strategic tasks facing the industry, and if necessary to adjust the draft of the energy strategy”.

The arguments in both sides


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