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Thursday, October 27, 2016

Pricing of oil could be reformed

Speaking about the factors contributing to the fall in oil prices, we often accept the existing system of pricing as constant. Meanwhile, reform in this area is long overdue. There are recipes for how to make the price of oil fair for everyone – sellers and buyers. Moreover, the center of this new market, most convenient to create in Russia.

Has become common place talk about the fact that for stable, sustainable development of Russia is extremely desirable to reduce the volatility of oil prices. The price level even less important than its spread – let the price will be low, as long as it was stable. It is important not only for us but for the majority of countries as net exporters and buyers of hydrocarbons.

“The fact that the international exchange trade in oil payments in rubles is virtually absent, leads to the weakening of the Russian oil and gas companies”

Among other things, long-term price stabilization focuses the world’s financial markets to increase the investment attractiveness of the oil and gas industries, and industries – consumers of oil. In short, the reform of the global pricing of oil is overdue, it is needed, and its implementation requires cooperation with consumer countries and producer countries of crude oil.

Pricing for oil and for export and on the domestic market depends on the situation on foreign exchanges, as largely determined by the tactics of traffickers “paper oil”. And the fact that the international exchange trade in oil and oil products with settlements in rubles is virtually absent, leads to the weakening positions of Russian oil companies compared to the leading international oil companies.

For the normal development of the oil industry and it is necessary to change the existing regulations on foreign exchanges (ICE and NYMEX), combating speculative activities of dealers in “paper oil.” For example, the imposition of restrictions on the size of the “leverage” when trading futures, the ratio of the volume of open contracts and the real oil on the number of transactions closed real supply of goods and so on. Although the activities of these exchanges is global in nature, they are in the sphere of national regulation in the UK and the USA. This situation requires the involvement of key players in the global energy market regulations the regulation of these sites or creating new ones. This means that Russia at the highest political level necessary to achieve the creation of a joint Council to regulate the international oil market so that it represented all stakeholders.

In particular, it is critical to create a platform where trade in Russian oil will be carried out in rubles. Its main potential drawback is the lack of this trade a huge number of “cheap” money in the hands of financial speculators, which are present on the Western markets and provide a significant reduction in financial costs of world and Russian oil and gas companies. However, the potential short-term price arbitrage (for example, due to the difference in time zones) will inevitably lead to shifting a substantial part of this financial weight on the new ruble exchange, provided that the technical capabilities of the Russian monetary authorities (no wonder it created a mega-regulator). At the same time the authorities should provide and the high level control, i.e. to prevent abuse and unscrupulous speculation on the level of the requirements of the stock exchanges in London, Rotterdam and new York.

In this context, it is important to establish a regular energy dialogue between Russia and OPEC – the main suppliers on the world oil market. The purpose of the active conduct of a coordinated action to stabilize global markets due to, firstly, reduction of volumes of deliveries of oil and oil products on the world market, secondly, the development and application of legal mechanisms, stabilizing the market. You need to bring to joint action and other large independent oil exporters (Kazakhstan, Azerbaijan, Norway, Brazil), and in parallel to take steps to diversify its foreign exchange calculations and the creation of a “basket of currencies” for cooperation in the oil sector. Finally, we need to build infrastructure redundancy oil and oil products to prevent sharp fluctuations in prices, in this respect, the creation of new trading platforms are also very useful.

But one of the main directions of the reform of oil pricing is seen as the creation of a global market long-term contracts between producers and consumers of oil based on the average of the smoothed price over previous periods. Given the manifest downward trend of oil prices in 2014, this idea can now become particularly attractive for the consideration of the buyers. The benefits are obvious: reduced dependence on exchange fluctuations removed the “speculative premium” of intermediaries, and ultimately decrease the cost of both consumers and producers.

Based on the current infrastructure and technology of the global oil trade, the market system of long-term contracts it is most convenient to create in Russia. Due to its geographical position, Moscow could take on the role of the logistics operator for the organization of the physical oil market is based on pipeline transport, not tanker deliveries. For example, the pipeline system of Transneft, getting oil from a variety of manufacturers, can be directly linked to refineries and Asia, and Europe.

Another essential element of a more equitable global energy order is the abandonment of oil prices to the dollar on the international currency and financial markets. There is an established inverse relationship of us dollar and the cost of a barrel: the rise of the dollar against the Euro and – in rare cases – the yuan or the pound leads to a decrease in quotations of oil futures, because the appreciation of the us currency makes oil more expensive. Oil prices in alternative currencies unfavorable to the current owners of the world’s major marketplaces, in this connection, you need to create a site with quotes “nevaeva” and “nefterubl”. Meterial already created on the Tehran stock exchange, but due to monetary sanctions on Iran, and requirements of Tehran in foreign currency until it is of a technical nature, not affecting even the domestic supply situation.

In other words, it is necessary to create new exchanges and increase the number of marker crude oil grades. And it is necessary to create a full-fledged alternative oil exchange, and the inevitable recognition by the world of rouble quotations because of the possibility of price arbitrage interexchange will provide, among other things, a stabilizing effect on the market and strengthen the status of Russia.

It is important to remember that the world in General, and the organization of world trade are constantly changing, and in 10 years, it may be completely different than it is now. Yes, in this direction needs a lot of work and take into account the enormous opposition, but to begin this important work now.

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