Today world oil prices fell again after yesterday’s growth. The correction took place on the market after a message by the Ministry of Energy of the USA that the commercial oil reserves of the country grew by 8.4 million barrels last week, i.e. by 1.7 percent – to 494.9 million barrels. Meanwhile, experts believe that oil prices may grow again if the countries producing oil do not cut volumes of production.
However, Vyacheslav Kulagin, head of the Center for International Energy Markets Studies at the Energy Research Institute of the RAS, says that it is pointless to cut oil production for Russia, as there are no agreements with the OPEC countries or the other players on the oil market: “If it were done in a coordinated manner it would make some sense; otherwise, it would indeed be a loss of market share.”
According to him, the basic expenses of Russian companies are conducted in rubles, therefore the weakening of the ruble against the dollar leads to lower production costs. “A couple of years ago, with that ruble exchange rate, we already considered $50 to be on the verge; now our companies are quite normally passing below $30. Here I see some major problems at this level. Of course, if oil falls to $15, it will be a problem,” the expert states.
He reminds that “a few years ago we planned quite a few large projects, large expensive projects, which, in general, due to oil prices, today they cannot be introduced to the market. We need to consider whether to carry out these projects now or wait a little for better times and a slightly better pricing environment and not waste money now, but spend it on more sensible things. Exactly this is what will enable us to adjust production and stop, say, those record figures of production growth we have now, and to stabilize for a little bit, maybe even to lower it.”
Kulagin says that “two or three years ago, we saw a normal level of balancing of supply and demand at the level of 100 dollars per barrel. This peak of demand has been cut due to less demand for many projects, the most expensive projects have been removed from the market. Plus, several cost reduction projects have been introduced, due to continuing development of technology and the dollar exchange rate.”
Kulagin believes that the fall of oil prices is caused not only by the market factor, but also by speculative and other expectations.
“Iran has not boosted production. It has not released anything onto the market, it is simply at its previous levels, it's more a speculative factor, which plays on the expectations of the players.
But Iraq continues to grow quite well, using investments that have been made after the war. In the past five years it has increased its production by approximately 40%.
The US has finally stopped such rapid growth. April 2015 can be considered the peak of production. It has stabilized in a few months, and this year we see a decline.
That is, the market is correcting itself,” Kulagin concludes.
The expert points out that in the context of oil overproduction, everyone is trying to sell it for whatever price, to make money somehow: “The games are difficult to predict, and they are somewhat dependent on the balance of supply and demand. So we are below the normal equilibrium level, where the price can flow at least to one or the other side, where any factor can influence it, even the emotional factor. The price is just highly volatile and it is very difficult to predict when we will get to the level of balance. Our return to a balanced level is prevented, not even so much by the mining sector, but the global economy, especially of the Asian countries, developing Asia, which provides the main growth.”
