Oil prices fall to $30 per barrel

Oil prices continue to fall on the world markets. As of 07:45 the crude oil futures of WTI decreased in price by 1.45%% to $30.95 per barrel, Interfax reports.

According to TASS, the price of a barrel of Brent crude dropped 8%, reaching $30.8.

This situation is explained by fears caused by the slowing of Chinese economic growth, which intensified after the People's Bank of China lowered the yuan rate against the dollar in the first week of 2016 by more than 1.5%, which became the biggest change in the Chinese currency since August 2015, when the devaluation of the RMB affected global stock markets very strongly, as well as continuing oversupply of raw material in the market, RIA Novosti reports.

An advisor on macroeconomics, the director general of the brokerage house ‘Opening’, Sergei Hestanov, in an interview to Vestnik Kavkaza said the fact that "the market has excess of oil" is the main strategic reason for this situation. "According to various estimates, it is 1.5 to 3 million barrels per day. As long as the excess is not reduced, the pressure on prices will continue," he explained.

"According to the first version, it is assumed that the current economic downturn is cyclical. If this is true, the oil price drops sharply within 1-2 quarters usually, but then it quickly grows. But there is another point of view which states that the current economic downturn is structural. Unfortunately, changes in the structure of the economy are always a very slow process and the most striking example of such a fall in oil prices is the period from 1986 to the beginning of the 2000s," Hestanov said.

"Unfortunately, in recent years there are more and more arguments in favor of the fact that the current economic downturn is structural. But, again, we cannot receive an objective answer to this question before Iran’s return to the global market. If oil prices fall further after the return, it will mean that we entered the structural crisis and there is no reason to wait for a rise in prices in the coming years," the economist added.

"You can proceed from the price, which the budget of Saudi Arabia was based on, of $29 per barrel. But many manufacturers have higher costs and, consequently, when the price is declining, some manufacturers will start to leave the market," Sergey Hestanov concluded.

In his turn, the associate professor of the department of finance, money circulation and credit of RANEPA, Maxim Safonov, explained the fall in oil prices by the current level of supply and demand.

Speaking about the impact of fears caused by the slowing of Chinese economic growth, the expert expressed the opinion that everything will depend on "how much they are willing to reduce or increase consumption levels". "They have total state control of everything," the economist noted.

As for the future of oil prices, according to him, "they cannot fall to the production cost level, regardless of whether it is produced above the Arctic Circle or anywhere in Bashkortostan and Tatarstan". "There is an actual cost of $ 7.3. Of course it can go negative, but it is absolutely not rational," Maxim Safonov concluded.