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Friday, October 28, 2016

Increase in oil prices will not work

28 September on the sidelines of the World energy forum in Algeria scheduled meeting of OPEC, Russia and other major oil exporters. Expert opinions were divided: some believe that the parties agree to freeze production, others believe that there will be a convenience exchange.

photo: Kirill Iskoldsky

During the week prior to the meeting, oil futures on the commodity exchanges jumped as it happened after the energy Minister of Algeria, said the possibility of transforming informal meetings oil producing countries in the official.

The price hike has further spurred the message that U.S. oil reserves. Optimists are inspired by the past ahead of the Algiers meeting, the negotiations between Saudi Arabia and Iran, rivals for regional hegemony and the main competitors on the world oil market.

However, the jump is difficult to call. Quotes, as before, balance in a corridor of $46-47. Most likely, a small price rise will be short-lived. Most experts do not believe that Saudi Arabia, Russia, Iran and other oil powers agree on limiting crude oil production. Several such meetings have been to no avail. That’s why when Venezuelan President Nicolas Maduro made a statement that OPEC members here agree among themselves, analysts turned a deaf ear. Of the 23 experts polled by Bloomberg, only two reacted with the credibility of such reports.

“Slaves market”

Always, of course, are optimists. “The probability that something will happen increases,” — says researcher of the Center on global energy policy at Columbia University (new York) Jamie Webster.

The meeting, which stirs the minds of stockbrokers and analysts must go through “on the sidelines of the 15 th International energy forum in Algeria (it will be held on 26-28 September). “In the fields” means, without official status and, most likely, without any jointly adopted official documents. But, as noted recently leading financial Internet resource MarketWatch, “when they say two main oil producer in the world, traders are listening to: to meet Saudi Arabia and Russia chained close attention. This meeting may pave the way for agreement OPEC and other oil-producing countries outside the cartel, to the establishment of ceilings on production.

Some estimates of the upcoming meeting are based on cynical pragmatism. So, senior researcher, research center of Merkatus” at George Mason University (located in the suburbs of Washington), Omar Ahmad al-Ubaydli says: “as Saudi Arabia and Russia, both these countries… know that in the oil market cannot be achieved effective cooperation. It is hampered by market forces. But they believe that the extra time to meet and make statements about mutual support never hurt”. But from this it follows that anyone can not help.

The same opinion, according to the Washington examiner, al-Ubaydli adheres Tehran. According to the Associated Press, the Minister of oil of Iran Bijan Zanganeh following the meeting with the Secretary General of OPEC Mohammad Barkindo said that “his country will support any decision by OPEC aimed at stabilizing the oil market.”

“In the case of Iran, says al-Ubaydli, — Tehran is pleased to Shine once again in the media, especially now, after the lifting of sanctions. Officials of this state like to make statements indicating that their vote has a weight in world Affairs, although in fact both Iran and all other oil producers are slaves to market forces”.

Three barrier

In the meantime, the “slaves”are the oilers trying to obtain short-term gains by forcing the exchange of expectations, policies, and the financiers are preparing the economy to the era of cheap oil prices. As recalled recently by Vladimir Putin, Russia’s budget in the 2017-2019 biennium. typeset based on the price of $40 per barrel. But Russian Finance Minister Anton Siluanov proposed to consider the “Russian windfall” revenue from exports of crude oil received at a price above $40 per barrel. That is, the tax revenues paid by our oil exporters, the proceeds in excess of this bar, in the Minister’s opinion, should come not in the budget, but directly in a shrinking Reserve Fund.

The General direction of the price development on the oil market is pointing down, due to several factors: an overabundance of “black gold” on the market and reduced demand due to the weak development of the global economy and constant improvement of energy-saving technologies, and the progress of alternative energy (solar panels, wind turbines, etc.).

While the statement by the Algerian Minister of formalizing the meeting of oil prices, nothing is strengthened. Earlier, the head of OPEC Barkindo emphasized the informal nature of this meeting (most likely it will be held on the last day of world energy forum — 28 September). According to the Secretary General, if suddenly all those talks fail to agree on the establishment of production ceilings, OPEC will convene an emergency session.

As noted recently by The Wall Street Journal, it will be difficult to negotiate. Whatever may be said Barkindo and other officials. Three of the 14 countries — members of OPEC (Iran, Libya and Nigeria) decided to increase oil production, and then to speak on the subject of freezing production. Recall that the veto may impose any of the members of the cartel.

But there are a few “buts”. Let’s not forget that one of these countries — Nigeria — particularly close to the heart Barkindo because he was born there and was the head of the National oil Corporation. This country wants to increase oil production to 2 million barrels per day or more (today, due to sabotage of extremists, it is only 1.5 million).

Libya, where production has fallen (due to the fact that its ports pass from hand to hand during the internecine clashes) to 280 thousand barrels per day, seeks to increase daily production to 1 million barrels”.

Iran just released from the sanctions, believes that he is in arrears of about 400 thousand barrels per day. When it will increase production by this amount, the production of Iranian oil will reach more than 4 million barrels a day, and then Iran will be ready to “freeze”.

“The freezing of the production level without the participation of Iran, Nigeria and Libya — nonsense,” — said the Chairman of the British consulting company Alfa Energy John Hall. This would mean that other countries should cut production first and foremost Saudi Arabia. And she wouldn’t do to not give the market share that it gained in the last two years.”

Specify: Riyadh, don’t do this, not to give this share to his worst enemy in the region of the Middle East — Iran. So the prospects are very uncertain and based on many assumptions.

With an eye on US

When talking about the future of oil prices, and always think about America. And for good reason. About Washington should be remembered always. The USA is the third country on volume of oil production in the world and at any time can become the largest, surpassing Russia and Saudi Arabia. (If you consider the production of biofuels and other liquid fuels, USA today in first place in the world.) The number of unused oil resources in America is enormous. This heavy shale oil and light sea. If suddenly the prices on the world market will rise, us oil companies begin to increase production in a fast pace will be put into circulation sealed wells, will continue the commissioning of new fields.

If this year’s oil production in the U.S. is about 8.8 million barrels per day in 2017 and it is, according to experts, can become even smaller at 8.5 million But maybe more. For example, in 2015 the American oil industry was producing more than 9.4 million (for comparison: Russia produces about 11.7 million, Saudi Arabia — more than 10 million). And let’s not forget that at the end of last year, the U.S. Congress repealed a ban on the export of crude oil, which operated in the United States for 40 years. Benefits — longer swing for himself, and for export.

Recall that Canada (the largest oil supplier to the us market, 43% of netimport USA) this year for the first time in 7 years reduced the volume of oil production — from 3.85 million barrels a day, to 3.82 million Also not trivial country: fifth in the world in terms of oil production and fourth in exports of “black gold”. And it may also increase the volume of production — if the prices will go up in the world market.

The Saudis have tried, without success, to slow the rapid growth of oil production in North America with the help of low prices that make production unprofitable shale oil. This Arabian Kingdom had pumping oil almost at a loss, spending foreign exchange reserves. But now all the efforts of Riyadh can go down the drain if Saudi Arabia together with Russia will begin to reduce production and thereby raise the price. Then America will come out with its oil — the more that the threshold of profitability fell significantly due to new technologies. Bloomberg reported on some shale deposits in Texas, where profitability is not only achieved at the price of $30 per barrel, but even at $22! And if suddenly the price of oil will stabilize at $50 per barrel or higher, the shale oil industry will again begin to quickly raskoshelitsya.

So Moscow and Riyadh will probably act given the folk wisdom: “Be careful what you wish for — because they may come true!”

The desire to raise prices is likely to continue to remain only in words. The preservation of the intrigue will be to ensure that prices did not fall quite so low. But we can not exclude that at some point disappointed oil traders can lower “black gold” to the level “black metal”…

Rising prices and a falling ruble. Chronicle of events

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