Will oil market continue nosedive?

Goldman Sachs experts published a forecast that crude oil prices will remain low until mid-2017, as the oil market is still unstable.

According to the experts, crude oil prices will remain in the $45-$50-a-barrel range till mid-2017.

"The improvement on the oil market remains fragile because of the a number of factors that balance it out: wildfires have helped to offset surprisingly strong production in Iran, declining demand in India and China in 2016 will help offset production issues in Nigeria and Venezuela; and finally overproduction drives the prices down," the report of the investment bank says.

 In addition, experts predict that US dollar fluctuations will be the key price driver since the global crude oil is traded in dollars, and is not derived out of fundamental market indicators.

Sberbank CIB analyst Valery Nesterov, speaking to Vestnik Kavkaza, said that there is a consensus on the oil market now, and the Russian government's forecasts on oil prices fit within its framework.

"Our government expects an average of $40 per barrel, the price of Urals is expected to be $43 in 2016. The long term forecast for the next year is $50," he noted.

However, according to the expert, the final balancing of the situation on the world oil market is being delayed. "Previously, it was expected by late 2016 - early 2017, but now it is expected in the second half of 2017. There are a lot of reasons for this. First of all, this is a slow oil demand growth," Nesterov noted.

The situation with the US shale oil has a negative influence as well. "After several months of rising oil prices a decrease in the US shale oil output has stopped. The fact is that according to some recent estimates, the cost at shale wells declined to $40 per barrel, which lead to serious progress. And, despite a wide range of prices from $10 to $120 per barrel, the number of drilling rigs working non-stop has declined," Sberbank CIB analyst said.

"In the future, the US shale oil production can be increased by another 100 million tons per year. Given that the industry is not regulated by the government, we will observe a free market with its chaos and the likelihood that oil prices may rise, but yet not so fast, not up to $70-80 in the next year or two," he said.

The increase in oil production in Iran, which plans to achieve its pre-sanctions level, also has an impact, the expert said. "By the end of this year, Iran will achieve its previous level of 4 million barrels per day, or 200 million tons per year. And this is not the limit," he warned.

"Perhaps, Saudi Arabia will also strive to increase its oil production now. As a result, perhaps, it will be ready to sacrifice the cost by increasing the volume. There is a partial compensation: a higher volume multiplied by a lower price, means the revenue will fall less," the expert explained.

In addition, according to Nesterov, the production will grow in Iraq and Kuwait, there is a chance that production in Libya and Nigeria will increase.

The expert also noted that the increase in oil prices was influenced by some isolated factors, such as the terrorist attacks in Nigeria, wildfires in Canada. "These factors may disappear, but the volatility of the US production of shale oil will continue preventing a rapid rise in oil prices," Sberbank CIB analyst said.

"In general, a combination of factors contributes to the fact that the volatility of oil prices in the next year or two will remain, therefore, once the price rises to $50-55, it will immediately fall back," Valery Nesterov concluded.