Oil: price reversal to happen

Iranian oil could reach an already oversaturated market after the agreement to hold a meeting of foreign ministers of the six negotiators to announce the implementation of the Vienna Agreement, which will remove sanctions against Tehran. According to the director of energy policy, the head of the Energy Department of the Fund ‘Institute of Energy and Finance’, Alexei Gromov, the major oil-producing players are in some confusion. "That effect of essentially non-intervention in the situation on the market that OPEC expected, didn't happen. OPEC itself has been increasing production and the United States has not lowered its production, and Russia has also stepped up its production and exports.  Another blow to the market, which has strongly destabilized the market, was OPEC's refusal to set a quota. It actually said "we will monitor the market. You can produce as much as you want, do anything you want in this market, and we will look at how the market will react in this case," the expert said.

According to him, this situation is related to Iran: "As a result of the lifting of the sanctions, Iran felt that in 2016 it can and should reach the market. In 2012, when Iran was under the influence of the most severe international sanctions, its market share was taken by its sworn friends from OPEC, first of all, the same Saudi Arabia. Today the same problem of Iran is to regain the market share that it lost during the period of the sanctions."

However, according to Gromov, "none of the member countries of OPEC will give up their share so easily. It turns out that, at the level of OPEC, each of the countries, in fact, starts to play for itself in a situation where there is no clear coordinated policy within the cartel. This means that today the cartel is not a major governing force on the world oil market."

The expert also noted negative trends in terms of demand: "Speculators are now set to play on the slide in the market. Naturally, they will only warm up the situation that has developed today in the world oil market."

As for Russia, according to Gromov, "$30 today is certainly not a normal situation for the world market and the sustainability of the market players and, of course, for Russia. But I would not say that this negative trend of low oil prices will be maintained throughout 2016. A price reversal will happen. The probability of price reversal in the second half of 2016 is significantly higher than the probability of low oil prices. But the recovery of the prices, in our view, will be a hard shock. Most likely, the price recovery may play back from the current price of somewhere around $15-20. That is, the price at the end of 2016 will return to the level of $45-50. In the future, price movements will depend on how the balance of supply and demand will develop in the coming years."