Oil prices continue falling

The head of the Russian Central Bank, Elvira Nabiullina, told the State Duma that the average oil price throughout 2015 will be below the current price, though a fall to $60 per barrel was unlikely. Oil prices on world exchanges continue dropping, say experts, the average price will be a little below $100.

According to Alexander Pasechnik, the head of the Analytical Department of the National Energy Security Fund, geopolitical factors have little impact on falling oil prices: "China has started picking less oil these months. In Libya, despite geopolitical instability, there is increase of extraction. America boosts its extraction projects, the shale oil revolution is in full spate. There is certain overstock at markets. Although Iraq is at war, there is an excess of supply. Iran under less sanction pressure than before, offers certain volumes. In other words, we are seeing a fundamental movement, prices are falling, but the tendency is most likely to be short-term. I note that the so-called "war premium" in barrel prices has become a constant. Geopolitical factors are not moving quotations; in other words, they are stable. No one pays attention to the "war premium" now."

Alexander Pasechnik believes that local oil prices may drop to $80 per barrel for a short period: "It is the shift of the shale revolution in the US, because most wells will stop. The second moment is that we should not forget that even if the US has a deal with Saudis, Saudi Arabia is not a politically stable country in a situation when there are social risks. If the Saudis fill their budget by high oil prices, if there will be a failure, there will be a revolutionary scenario. Why would they harm themselves? In crude terms, the sheikhs will lose a stable regime. Why would they give up power? Why would they need a revolutionary scenario?"

Concerning the growth of oil prices in the next 5-7 years, the expert explained that developed fields were exhausted, oil will need to be extracted from more complicated shelves. This will require more expensive technologies.

Sergey Pikin, the director of the Energy Development Fund, assures that the fundamental causes of growing oil prices were rising supply, reduction of demand growth, which had been evident before June. "Since summer this year, forecasts for growth and changes in the US economy and further movement of the financial market have changed greatly. The dollar ratio to different currencies has recently risen by around 10%, We know that oil in full volume is practically normalized in dollars. Consequently, the final product sold on various exchanges became cheaper too, like North American oil and other types of oil," explains the analyst.

Pikin is confident that Russian oil costs less than $90: "If we talk about Brent, it is over 91, Urals is below 90 dollars. It means that each reduction of the dollar in the ratio of our Russian Urals reduces the budget income by about 70 billion rubles. Is it bad or good? It seems bad, on the one hand, because the budget will have a deficit in the short-term and there are all the prerequisites for that in the near future.

"On the other hand, everything depends on how the Central Bank implements its policy of containing or not containing the currency rate, because if the price for oil affects the currency rate, the budget gains more income instead. And the multiplier of the situation, if we take the policy of non-containment of the rate, and, for example free conversion, is about one to three. With falling oil per dollar, the budget income, in the case of a same-currency growth, will increase threefold," Pikin supposes.

"It seems the Russian Central Bank is making these moves. It has been refraining from entering the market for a long time, even now the effect of the Central Bank is small. What there was at the start of the year and what there is now are two completely different things in currency sales. So, in terms of the financial market, and the financial market determines oil positions in the world, the situation for falling oil prices is positive. In other words, oil may continue moving," says the expert.