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Saturday, December 10, 2016

Who do not need expensive oil


Oil world has split irrevocably. No one is playing in one of the gates. Faced not two-three or more groups. Iran is stepping up production, without reckoning with interests of other manufacturers. The sheiks of the Persian Gulf are not willing to concede niche market. Russia mumbles and goes on about the competitors, but does not beat his fist on the table, as it should. The countries of Latin America, particularly Venezuela, not the authorities. There are “gray cardinals” such as the United States. For Washington, both provisions benefit: high quotes give a new chance “shale revolution”, the low — will force investors to shift into dollars, which is an additional boost to the value of that currency.

Good or bad — there is no sense to argue. Can be decomposed parties to the dispute on categories, but then don’t get an answer.


photo: pixabay.com

Dynamics of development of commodity market asks more questions than gives them a specific answer: are we seeing a sunrise or sunset of the oil era.

The language of words, not deeds

The main producing States are unable to reach agreement on the freezing of raw material extraction at the January level. Offer “black gold” on the world market exceeds demand. The surplus reaches 3 million barrels per day. According to the International energy Agency, we are awash in “black gold”. But these treatments more harm than good. Producing countries themselves are to blame for the fact that now they have to urgently convene an emergency forums. For 10 years, since 2005, world oil production grew from 3.9 billion to 4.2 billion tons. At first glance, it is obvious that the miners themselves were clean ski, which recently roll down.

Take the same United States. The largest consumer of oil on the planet. For some time now — one of the main producers, third after Russia and Saudi Arabia. It is the merit of the famous “shale revolution” that allowed Washington to increase the production of raw materials almost doubled.

Downside — the overproduction of oil and a sharp drop in prices. The US stepped on the same rake — now they have every month to close dozens of oil wells whose profitability has become negative.

There are many States that initially declared the increased interest in oil and gas, and then has refused the claims. They promised to significantly increase commodity imports, but as the forecast for the development of their economy were exaggerated, the need for additional volumes have disappeared. So they refused the contracts.

It is clear that in addition to miners in low prices blame those who excessively overestimated purchasing capabilities and, perhaps, gave one last kick to the world economy, which led to large-scale financial crisis.

So in what position were those others now? Let’s face it.

Strike oil, strike on Russia?

Oil production is currently becoming increasingly unprofitable business. Of course, this definition is conditional. Profits, which were extracted from the mining business of the company two years ago, it is difficult to compare with their current earnings.

Let’s start with Russia. Only in our country the net profit of oil holdings, which is on the verge of acceptable values, this year will be reduced to 5%.

Thus in 2015 the volume of oil refining in Russia has fallen by 2%. By 2020, our country plans to cut oil processing by 8%, and by 2035, 23%.

This strategy looks odd. Over the past 15 years the number of cars in our country increased by 2 times. Now every fourth Russian has no ownership of the “iron horse”.

In the coming years growth in the number of cars per capita in Russia will continue. Moscow is now 2-3 cars per family are not uncommon. There is every reason to assume that the same trend will be photocopied in the regions. Let there be cars older and with high mileage, but will. And they will have something to ride. But if gasoline will be less, it will not return if the fuel in the category of deficit and are we gonna see kilometer-long queues at gas stations. Perhaps, we’ll see. The question of the introduction of fuel tickets have already been raised in the state Duma.

Back to macroeconomics. Western experts write us tickets for the light. According to the International monetary Fund (IMF), in 2016, the fall of Russia’s GDP will amount to 1.8%. According to the IMF, oil prices will fall to $30 and the dollar going through the roof for $ 100. The volume of reserve funds we will drive for 3-4 years.

Perhaps West exaggerates. According to the same IMF, in 2017, Russia’s GDP will grow by 0.8%, while inflation will not exceed 6,5%. It is close to the forecast of Ministry of economic development: GDP growth is expected at 1%, inflation — about 5%. Not a failure. Russia climbs up as you can. Yes, inflation last year reached 12.9 percent. But the reduction of this index in 2,5 times is progress. Not a regression, not conservatism and not backwardness. This is not a failure of the economy as a whole.

Note, “in General”. But recall that the increase in oil prices, a liter of petrol we have more expensive. No one asked why — from the point of view of economic logic, it can be justified.

Now, when oil falls in price, still to fill the tanks becomes more expensive. Why?

In the U.S. prices fall at the gas station. But in Russia all on the contrary. The growth in excise taxes aimed at increasing fees from wholesalers, was to increase fees from sellers. Many believe that the oil companies are earning a lot even in a crisis. Not quite. Domestic miners are indignant because of the probable loss of a significant amount of earnings. Due to the increase in taxes in the next 3 years the production level will fall to 100 million tons. About this recall a little later.

But the price of fuel can recall now. Increased the excise tax on gasoline, the oil magnates will pass on to the average motorist. They must report to shareholders and investors. But 2.6 million for a full tank, it’s not 1.6 thousand rubles. Where they will take this money to the citizens, and accordingly, mining companies? In 2015, the indexation of salaries in our country lagged behind inflation: the latter exceeded 12% (most analysts say the figure in the 14-17%), and the indexation of income reached an average of 5-6%.

It remains to rely on the fact that other worse. Encouraged by the West in Ukraine inflation in the past year exceeded of 43.3%. It is not strange that, according to IMF forecasts, current account balance of this country in 2016 will again be scarce and will be minus 2.6% of GDP. In 2017 it is expected a deficit of 2.3% of GDP in 2021 — at the level of 2.5% of GDP.

“Getters” and “peredoviki”

Who now fills the market with unneeded fuel that has prices. Is Iran. With Tehran lifted sanctions, because of which he could not supply raw materials to Europe and America. Iran did not fail to take advantage of. During the year its production rose by 1 million barrels per day (while reducing the demand for energy more than enough to bring down the quotes). But Iran needs money. First, to increase exports, and secondly, to invest launched the oil sector. Also, attachments require all other sectors of the economy. Iran, which was for years cut off from technological innovations, needs to catch up fast. Low oil prices to increase capital do not contribute. But for Tehran and will come down to $25-30 per barrel, if only the income was carried out on a regular basis. The cost of production in Persia does not exceed $6-7, so even a tiny profit for them best.

Similar to the cost of Saudi Arabia. But the Kingdom could not withstand a long period of stabilization of the price of the market. The IMF has estimated that if the cost of this country will remain the same huge, its financial reserves will be over in 5 years. Now the volume of deficit of the economy of Riyadh is more than $100 billion, or a fifth of GDP. Experts believe that the equilibrium of the budget, the Saudis can provide only a price of $100 per barrel. It is worth Recalling that, according to the IMF, in 2015, world oil exporters did not get $390 billion hardest hit were Kuwait and Saudi Arabia. In this year the loss of the Gulf countries at risk to increase by another $150 billion.


photo: ru.wikipedia.org
Riyadh hopes that the former head of the Saudi Ministry of health Khaled al-Faleh will be able to raise oil prices.

But Riyadh does not catch pie in the sky, with a bird in the hand. In Doha, he has not endorsed the “freeze” production for fear of losing the market, which can intercept Tehran. Similar decision was taken by representatives of UAE, Qatar and Kuwait. Bird in the hand, of course, it’s more than nothing. But then, the oil sheiks will have to sacrifice infrastructure and construction projects. In the next 5 years for the construction of resorts, hotels and highways, they pledged up to $3 trillion. Some of them potential tourists will be able to look only a decade later.

As for Venezuela, Nigeria, Algeria and Colombia, which are also included in the list of the largest oil producers, high prices are necessary to them as air. Without this, they can expect an economic collapse. Venezuela has reduced the supply of electricity for the population to save. Also because of problems with electricity and in connection with the crisis in Caracas has reduced the number of working days.

Colombia is also doing poorly. The currency has depreciated by 25%, the country is experiencing the lowest productivity in history, the share price of local blue chips fell by half. The crime situation exacerbates the situation.

Even in relatively prosperous Norway will experience not the good times. There is record unemployment, and the income from the “oil” is reduced so that the authorities had to print the state oil Fund of accumulation, which was postponed for a rainy day for decades.

Iraq my friend, but Riyadh is more expensive

Who is left to hope the dispute: win whether low oil prices, or high? It is unlikely manufacturers. In the next few months, they just will not agree to “freeze”. Then on the largest consumers. Such as China and India.

But these countries are unable to give any promises. They are able to make friends with anyone is beneficial for the current day.

In January of this year, Chinese President XI Jinping visited Iran, where, according to both sides, were laid “the foundations of strategic relations between Beijing and Tehran”. Signed 17 cooperation agreements. It is projected that in the coming decade, trade between them will increase to $600 billion Is the plan for the next 25 years.

We can assume that China is prepared to buy cheap oil from Iran. However, there is one “but”. Beijing does not want to sever relations with Riyadh. The visits of Chinese officials in Saudi Arabia also speak about the bilateral strategic relationship and make you think: does the PRC applies to those two States?

Note that Iran is ready to make friends with anyone who is going to need oil. Already held talks between Tehran and Johannesburg. South Africa wishes to build a joint refining and petrochemical factories under Iranian oil.

There is also the factor of India. She plans to achieve economic growth of 8-10% over 3 years. These figures are consistent with ratings Agency Moody’s, which predicts that the growth rate of the Indian economy will be in the range of 7.5%. But it is written with a pitchfork on water. As stated by chief economic Advisor to the government of India Arvind Subramanian, need gradual improvement of the system of economic management. Ways to achieve this goal a little bit. Need to increase domestic demand. Just how to do it? The average salary in the Indian public sector is $75 per month. Employees of private companies receive $125. There are specific problems that may hinder in the long term. For example the caste system, which restricts labour mobility.

So if Beijing has a choice with whom to be friends with Tehran or Riyadh, Delhi the choice is limited: want to build a strong and competitive dialogue with other countries make the situation in their country to foreign negotiations was backed by real production orders.

The exception to the rule

After passions around the meeting in Doha had subsided, remained dry statistics. Someone cries, someone celebrates his victory. But the financiers of the United States, in fact, still. As the saying goes: “heaven rejoices, if not the demon forge”.

On the one hand, Washington loses from the low prices on “black gold”. Its cost of production significantly higher than in the countries of the Arabian Peninsula and in Russia. “Shale revolution,” which emphasized Barack Obama has failed. Of course, if the stock starts going up, then its implementation will continue. But whether it will go to investors? The number of operating drilling rigs in oil production in the US reduced to a dozen a week. By the middle of April their number has fallen to historic lows. Would the investors again to invest if oil prices will play to the level of profitability?

Not a fact. Financiers that determine the current price of a barrel, had never seen the rig, only in pictures. For many people the raw business ended with a visit to the exchange and a visit to the office of the mining company. But they are the main driver of prices. When they are profitable, they invested in expensive oil and mining companies are investing. When you see that the global interest in raw materials drops (add a surplus of energy), are passed to other tools for making money.

Now on the market lull. Everyone expects a new round of negotiations of the major manufacturers of “black gold”. When they take place — is not clear. Perhaps in may or June. It is not excluded, that will have to wait until October. And there will be solved remains anyone’s guess. Apparently, solidarity “freezing” of production from manufacturers should not wait.

This is corroborated by the fact that the oil company Saudi Arabia Saudi Aramco announced that it intends to significantly increase production in 2016. It happened right after Saudi king Salman bin Abdul-Aziz al-Saud dismissed the oil Minister of his country Ali al-Nuaimi, who held this position for over 20 years, and appointed the former head of the Ministry of health Khaled al-Faleh. The price of a barrel, on the eve of may holidays exceeding $47, fell to $44.

However, there is hope that the quotes of “black gold” all-taki will not fall below this mark. This trend is confirmed even the most fastidious experts. For example, the world Bank, which raised its forecast for oil prices this year. He expects to reduce the oversupply of oil. It’s not even the failure of the American “shale revolution”, although because of that daily world production will be reduced by 700 thousand “barrels” (this volume Iran and hopes to increase production). The main hope for exporters — China and India — are increasing their imports of “black gold”. Beijing last month increased the purchase of raw materials abroad by 22% and India by 7%. That is, all the prerequisites exist. So raise another $3-4 and the Russian budget will be reduced from “calm” a deficit of 3% of GDP, and to sequester its not needed.

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