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Friday, November 24, 2017

“Lessons “uncle of a barrel””


Recently oil is akin to Valerian. Or champagne. It beckons the expectation that all is forgiven and ready to return to higher prices, makes it clear that waiting in vain. To understand this, it is time to start reading novels. Or is it possible to find a rational explanation?


photo: Gennady Cherkasov

Why the oil market is unpredictable? Because players react to the mass of constantly changing events. Here actually and the oil market (demand, supply, stocks, shale gas extraction, investment in the oil industry) and currency market (first of all the fluctuations of the dollar against major currencies), and geopolitics (middle East, Iran, Russia, Venezuela, Nigeria and further down the list). The configuration resulting from arbitrary combinations of a large number of factors, some of which prefer to dress up in feathers, speaking in the form of “black swans”, events that in principle it was impossible to foresee each time a new — as in a kaleidoscope, its main characteristic is volatility.

And yet the picture prevailing at the beginning of March, gives grounds to say that the oil market is undergoing important changes. Inspire are still very cautious, but still optimistic, even the fragile hope that the emerging price growth — not the game of speculators, and begin the turn from bear market (“bears” in the stock jargon — players, pressing the prices down) to bullish (bulls raise the price up).

Where below?

But first the bad news. March 1, press service of the Ministry of Finance reported: the average price of oil Urals, the basic goods of the Russian export in January-February 2016 (only two months!) decreased 42.7% compared to the same period last year and amounted to $29,69 per barrel. In January-February 2015 average oil price of Urals was $51,81 per barrel. In February 2016 the average price of this brand of oil was $30,55 per barrel against $57,3 a year earlier. In 2015 the average price of oil Urals was at the level of $51,23 per barrel, a decrease to the previous year almost twice.

Frightening figures. They are just a mile blows by budget sequestration. But even in them we can find a positive. First, read and understand that if our economy completely depended solely on oil, the situation would be much worse today. Secondly, it’s still in the past, the future can be different.

Can? While don’t agree with it nor the international rating Agency, nor that this is not important, the U.S. Department of energy. Moody’s, for example, expects that in 2016 and 2017, the prices of Brent oil will be at $33 and $38 per barrel. Standard & Poor’s is slightly more encouraging: the average price of Brent crude oil in 2016, according to S&P, will be $40 per barrel in 2018 it will rise to $50. But Moody’s and S&P lowered its forecasts. Reduces its forecast and the energy information Administration of the U.S. Department of energy (EIA). 9 March went to the monthly forecast of the Ministry: the average price of Brent crude in 2016 will amount to $34,28 per barrel. The forecast for 2017 is $40.09 per barrel. In the February forecast price for 2016 was $37,52, 2017 — $50 per barrel.

So what was I saying?

Relay braking

February 25, U.S. energy Secretary Ernest Moniz, answering a question, did the U.S. request from OPEC to participate in negotiations about the freezing of oil production, said: “We do not control or try to control the level of production of our manufacturers”. But manufacturers are lowering production. This is happening for the past two months. The energy information Agency on February 29, reported: a fall in December 2015 compared with December 2014 amounted to 166 thousand barrels per day, as compared with the previous month, 43 thousand barrels per day.

On March 1, the newspaper the Wall Street Journal wrote that several major producers of shale oil in the United States for the first time in many years, began reducing production. Due to low prices. Company Continental Resources Inc., Devon Energy Corp. and Marathon Oil Corp. reported that this year plan to cut production by about 10% compared with last year. EOG Resources Inc. announced the reduction of its production by 5%.

The Wall Street Journal emphasizes, the current behavior of producers is in sharp contrast with the behavior in 2015. Then they began to reduce their production when prices fall from $100 to $30 per barrel. In 2016, companies are forced to cut costs that led to reduction of volumes of extraction of raw materials.

The market by not passed, prices have risen. Running relay braking oil production. On 29 February, the head of the Mexican oil company Pemex, josé Antonio gonzález Anaya stated that the reduction of the expenditure budget of his company at 100 billion pesos (about $5.5 billion) will lead to reduced daily oil production by about 100 thousand barrels, after which the level of production of Pemex will be about 2.1 million barrels per day. It is characteristic the expressed recognition Anaya: the head of Pemex denied that the company has liquidity problems and financing “in the short term”, but in General it is solvent. Essentially, this means that Pemex is forced to cut production because of problems with profitability.

Mexico, of course, the weather on the oil market does not. But to slow down and whales. On 1 March Reuters reported that oil production by member countries of the OPEC in February declined from the highest monthly level in recent history.

The numbers are like. The proposal from OPEC declined in February to 32,37 million barrels per day compared with the revised January value in 32,65 million barrels. Saudi Arabia has kept the indicator in comparison with January at 10.2 million barrels per day. But it’s not the peak. Record oil production in the Kingdom reached in June last year — 10.56 million barrels per day.

The biggest drop in production in February was recorded in Iraq, which in 2015 was harder to increase production. The decline occurred due to stoppage of pipeline, pumping oil from the Kurdish region.

Production declined in Nigeria, where the local unit of Royal Dutch Shell stopped pumping oil to an export terminal after the spill.

The reason for the decline of oil production in the UAE steel work maintenance at the field.

The Voice Of Russia

On March 1 Vladimir Putin met with heads of major Russian oil companies. Discussed Russia’s position with regard to the possible freezing of oil production.

Officially the end of the meeting, was presented by the Minister of energy Alexander Novak. He said: “of Course, discussed the initiatives that are being discussed now within the OPEC countries and OPEC to keep oil production at the level of January 2016. The company confirmed that they support this initiative, and in General this should give a fairly positive result for the market, as is predictability for market participants, reduce volatility and the possibility of planning their activities for the longer term”.

Interestingly, preliminary surveys “generals oil pits”, which were conducted by the media showed that they have not the same opinion. Oil workers feared that it will be about reducing the production and preservation of some of the wells would mean that prey on them more it will be impossible to recover. Russia — not Iran or Saudi Arabia, the conditions of mining much more difficult.

According to Alexander Novak, Russian oil companies have supported the initiative by freezing production at the level of January 2016. In the meeting with the President was attended by heads of the largest domestic mining companies, as well as the head of the presidential Administration Sergei Ivanov, aide Andrei Belousov.

From the point of view of prospects of oil prices made definitely the right decision. The market got a signal, and from the USA, and from several OPEC countries, and now from Russia that production growth will not be.

Vector

Of course, these figures do not give a strong belief that oil prices are ready to push off from the bottom of the barrel. There is Iran, a staunch conductive line on the growth of oil production at any price to regain its market share, and already has sent its fleet of tankers to Europe and other consumers of oil. This factor alone may outweigh both the outlined production cuts and the possibility of achieving an agreed restrictive decisions of oil producers within and outside OPEC.

There is another factor — the oil reserves that continue to grow, which means that there is excessive overhang of supply over demand.

What’s important is this: the market lives by sine wave oscillations. But the axis of the sine wave can go up or down a slope. What is a vector?

I can just see the seasoned connoisseur “fundamentals” of the oil market shakes her head: what kind of transition to higher prices is possible to speak?!

I, however, have questions. At the beginning of March, oil prices grew for the third consecutive week (however, since the mid of the month they started to take). Despite the fact that “fundamental” reason for it was not. Oil reserves, on the contrary, grew. Why pictures gets “Foundation”? Is it only because of conversations around the future of conversations?

How begins the reversal of the price trend? Is the main lesson of the market is not that the end of a trend of falling prices occurs not when there’s good news, and when prices stop falling on bad news?

Again. Oil prices are free to go in any direction. Every time with good reason, to be found, alas, after the fact. But if we proceed from the fact that they retain complete freedom of action, i.e. can jump from downward to upward trend, the signs of this shift can be seen now. The signs, however, does not guarantee that this transition is already happening.

Nikolay VARDUL, chief editor of “Financial newspaper”.

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