Today it is obvious to everyone: oil prices are falling. What is the reason for this, as well as what is the reason for the ups and downs in oil prices earlier, about the forecasts for the future - we will talk.
Russia, the United States, Saudi Arabia are in the first places in terms of oil production, since life without oil on the scale of the modern urbanized world is impossible, and countries - large exporters and consumers of oil products have a conflict, then the opponents decided to "step on the throats" of opponents using everything what is possible, including methods that negatively affect the economy.
First of all, the fall in oil prices (in our country) causes a decline in the national currency.
To begin with, let's figure it out (who is unfamiliar or unfamiliar with this area) and for a better assimilation of information we will repeat it for those who are aware of what oil is on the world market, why it is the equivalent of other valuable products, goods, securities, money, why so Is the price of oil important to the world economy?
So, I hope everyone knows what oil is.
Why is oil so valuable?“Oil occupies a leading place in the world fuel and energy balance: its share in the total consumption of energy resources is 48%. In the future, this share will decrease due to an increase in the use of atomic and other types of energy, as well as an increase in the cost of production ".
Oil is also called the "black gold of the Earth". Oil and gas are the main components of the life support of the entire world population, without oil and gas, as the verdicts of experts say, we will not last long. It is worth adding here that we also cannot survive without coal, fresh water, gold, diamonds, ore, etc.
More than 6,000 products contain crude or processed oil.
In general, oil is important, needed, without it, in fact, countries will get stuck in a huge traffic jam.
History of oil prices over the past 100 years:
The balance of supply and demand to the greatest extent (by 80-85%) affects oil prices (data from ERI RAS), but the balance of supply and demand is influenced by a variety of factors, including political reforms, battles, wars, periods of crisis, natural cataclysms, terrorist attacks, etc.
So, from 1861 to 1920, the oil price fluctuated from almost zero values to 1-2 dollars (all prices are indicated in the current US dollar).
In 1920, the price was fixed at $ 3, then a sharp jump to $ 11.58 in 1974 (immediately after the 1973 crisis). In 1979, the price of oil doubled: from $ 14 to $ 31 a barrel. In 1986, there was another “double”, but this time it was falling: from $ 27 per barrel to 14. Then there were small slow rises. In 2004, a $ 10 jump from $ 28 to $ 38. “Throughout the first decade of the 21st century, the price of oil has been growing - from $ 25-30 at the beginning of the century to prices fluctuating around $ 100 (with a short dip in 2008-2009)”.
So, in order.
« In the 1930s-1960s, oil prices were stable at $ 1-2 per barrel. Prices were then "announced" - their source was the international oil cartel, consisting of the "Seven Sisters" - 5 American and 2 European companies, which controlled 80-90% of the world "oil industry". In that era of oil price fixing, the dollar as a value and unit of account for oil was fully consistent with the fixed prices for gold and the gold dollar standard (Bretton Woods system, 1944-1971). "
In 1960, OPEC was founded (at the initiative of five developing oil-producing countries: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela). OPEC includes 12 countries: Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Libya, United Arab Emirates, Algeria, Nigeria, Ecuador and Angola. By the 1970s, OPEC's influence on oil turnover became significant (then OPEC controlled about half of the oil produced), and oil prices, industry prospects, etc. began to depend on the organization's actions.
“By the 1970s, oil was gradually coming under the national control of developing countries. The refusal of the free exchange of dollars for gold in August 1971 (the so-called "Nixon shock"), the devaluation of the dollar, the birth of a world of free floating rates and prices could not but blow up the fixed oil prices. The oil exporting countries had to compensate for the losses from the dollar devaluation ”.
« As a result of OPEC's actions in 1970-1974, the oil price increased more than 6 times (from $ 3 to $ 11.5 ) and became, in fact, floating. The giant price jump was determined by the economy (the appetites of the exporting countries and the devaluation of the dollar) and geopolitics (the 1973 oil embargo, the Arab-Israeli war). "
The 1973 oil crisis. Arab OPEC countries, as well as Egypt and Syria, stop supplying oil to Israel's western allies.
« After stabilization in 1974-1978 at the level of $ 11-15 per barrel, the revolution again - growth in 1979-1980 almost to $ 40. The oil crisis of 1979, the beginning of the Iran-Iraq war, the lifting of state control over oil prices within the United States from the end of the 1980s played a role. " . Also - the introduction of the USSR troops into Afghanistan.
“Traces of hot tectonics remained until the mid-1980s. OPEC tried to keep high prices further, maneuvered, changed the quotas of countries, reduced production, however, by 1986, oil was already worth $ 25-30. Why did it happen?
The fact is that the role of fundamental factors - demand, production, stocks - was increasing in price formation.
World oil production exceeded the demand for it. New suppliers have entered the market, proven reserves have increased, energy efficiency has increased, and oil consumption has decreased. In comparison with the 1970s, the dependence on OPEC has decreased, its share in oil production has decreased to 40%. In OPEC, coordination violations began.
And here's the result: after a two-fold increase in oil production by Saudi Arabia outside OPEC quotas in 1986, a collapse of oil prices began. In six months, they fell by more than half. Until the end of the 1990s, an era of low prices began, from $ 10 to $ 30, and on average $ 15-20 per barrel. Even the Gulf War did not reverse this trend. «.
That is, apart from external and internal political factors, the influence and strategy of OPEC, oil prices began to form taking into account the increased consumption of oil products. Plus, in Russia in 1985-90, the beginning of perestroika, the collapse of the USSR.
2001 and $ 25 per barrel: “After the events of September 11, the price of crude oil fell sharply. Spot prices for US West Texas Intermediate (WTI) crude were down 35% by mid-November. Under normal conditions, the decline in the price of this raw material should have resulted in another reduction in quotas, but in the current political situation, OPEC delayed an additional reduction in quotas until January 2002.
Quotas were cut by 1.5 million bpd in January. This example was followed by some non-OPEC oil producers, including Russia, which promised to cut quotas by another 462 thousand bpd. This move had the desired effect, and in March 2002 prices fell to $ 25 per barrel.
By mid-year, non-OPEC countries restored their quotas, but prices continued to rise, and by the end of the year, US commodity reserves reached their lowest level in 20 years. ”
Then the rise in prices in 2004-2005 (the price of oil rose to $ 40).
“In mid-2002, the overproduction of oil was over 6 million barrels per day, and by mid-2003, the overproduction was below 2 million barrels per day. During 2004 and 2005, the reserve production capacity of oil production fell below 1 million bpd.
The reserve capacity of a million barrels per day is not enough to compensate for supply disruptions from almost any of the OPEC producers. In a world that consumes over 80 million bpd of oil products, this adds a significant risk premium to the price of crude oil. This also entails a rise in prices up to $ 40 per barrel. "
In 2008, a sharp jump in oil prices ($ 140-147 per barrel), then a sharp drop by 60%: to $ 61 (average annual data).
In 2008, the beginning of the financial crisis, OPEC is cutting quotas by 4.2 million barrels per day.
“The oil boom that began in the middle of the first decade of the 21st century, associated primarily with the war of the United States and other world powers in Iraq, which ended with the overthrow of the Saddam Hussein regime, as well as world economic growth, led to a rush demand for oil, the price of which exceeded all admissible expectation corridors and reached the level of 52-55 dollars / bar in 2005 ... All this put on the agenda the issue of the limited proven reserves of hydrocarbons and turned the topic of “possible energy hunger” into the basis of market speculation.
Nevertheless, attention to energy security issues in the world has increased significantly. July 2008 - oil prices peaked at $ 143.6 per barrel, after which oil prices began to fall sharply. The fall followed by the bankruptcy of the largest financial and investment banks in the United States.
The onset of the global economic crisis has changed priorities and exacerbated energy problems. The bursting "financial bubble" led to an almost threefold drop in oil prices in a short period of time.
The demand for oil fell sharply, which led to a surplus of oil on the market and a further drop in oil prices. The gloomiest forecasts for oil prices determined the threshold of up to $ 25 per barrel, however, prices remained at around $ 30, and only from March 2009 they began to grow slowly. «.
In 2009, the demand for oil begins to grow in emerging economies.
On the rise in oil prices in 2011 ($ 115 per barrel) influenced, including the "Arab Spring", the war in Libya, the cessation of oil supplies to world markets (1 million barrels per day), in December OPEC increases the quota by 1.35 million barrels per day.
The fall in oil prices in 2014 was influenced by an increase in oil production in the United States, a decrease in forecasts for oil demand (IEA), and a slowdown in economic growth in China.
Saudi Arabia is the richest country in oil, with a quarter of all world reserves of "black gold" located there. Russia is one of the ten countries with the largest oil reserves, “6% of world reserves, oil here may run out in 22 years. Many believe that the reason for this is unreasonable state policy in the field of natural resources, ”48% of GDP comes from the oil sector.
Saudi Arabia
Total resource cost: $ 34.4 trillion
Oil reserves: 266.7 trillion. barrels; cost: $ 31.5 trillion
Natural gas reserves: 258.5 trillion m cube; cost: $ 2.9 trillion
Wood reserves: not in top 10
Saudi Arabia owns about 20% of the world's oil - this is the largest share among all countries. The fifth largest natural gas reserves in the world. Resources are rapidly depleting, and in a few decades, Saudi Arabia will fall out of this ranking.
Russia
Total resource cost: $ 75.7 trillion.
Oil reserves: 60 billion barrels; cost: $ 7.08 billion
Natural gas reserves: 1.680 trillion cubic meters cub. ft (47.58 trillion cubic meters); cost: $ 19 billion
Wood stocks 1.95 billion acres; cost: $ 28.4 trillion
Russia is the richest country in natural resources, but far from the richest country in the world. It ranks first among all countries in the world in terms of natural gas reserves (27.5%) and timber, second in the world in terms of coal and rare earth minerals deposits (rare earth minerals are not currently mined). In third place in terms of gold deposits.
True, with regard to oil production, Russia for a long time was in first place in the world with an indicator of 10,107,000 barrels per day, today the leaders are the United States (with its "shale" oil), Saudi Arabia, then Russia.
“Back in 2013, Russia was the leader in the list of oil producing countries. But in 2015, it was replaced by the United States with 12.4 million barrels per day. Saudi Arabia is in second place with 11.6 million barrels per day, and only in third place is Russia (10.6 million barrels of oil per day). Further - China (4.4 million barrels), Canada (4.0 million barrels), Iran (3.2 million barrels), Iraq and others. "
For Russia, in the opinion of most experts, the low price of oil and its further decline are dangerous.
"Topics" What oil prices depend on (05.11.2015), the program of the channel "Moscow 24":
Oil, despite the rise or fall in its price, always (at least for a long time) "is and will be in demand." It cannot be replaced by anything, liquid non-oil and alternative fuels cannot fully and even in a large enough partial replace oil:“The peculiarity of the demand for oil is that in the short term, demand is low elastic: the rise in prices has little effect on demand, since oil is one of the main energy resources and cannot be replaced by any other resources in those areas where it is most widely used (fuel for the majority modes of transport, petrochemistry).
Therefore, even a small drop in oil supply leads to a sharp rise in prices.
According to ERI RAS, it is the balance of supply and demand that has the greatest impact (by 80-85%) on oil prices ”.
Even when, after several jumps in oil prices in the recent past and present, the prices of gasoline and fuel for heating houses also rose, people began to build houses with a more economical heating system, with better thermal insulation, moved to fuel-efficient cars, etc.
As a consequence - a decrease in oil production and an increase in its cost, but after stabilization of the atmosphere - again there is a drop in oil prices. This is the prospect, according to experts, for the next decade.
“In the long term (decades), demand is constantly increasing due to the increase in the number of cars and similar equipment. More recently, China and India have become the world's largest oil consumers. In the twentieth century, the growth in oil demand was counterbalanced by exploration of new fields, which also made it possible to increase oil production.
However, many believe that in the 21st century, oil fields will run out, and the imbalance between the demand for oil and its supply will lead to a sharp increase in prices - an energy crisis will come (some believe that the oil crisis has already begun, and the rise in prices in 2003-2008 was its sign) " .
The exchange rate of the dollar, euro, ruble depends on the price of oil. So, for example, with a fall in oil prices, the exchange rate of the dollar, the euro increases, the exchange rate of the ruble falls. As the Russians say: “oil sucks in the ruble,” “the ruble turns black from oil,” etc.
Back in August 2015, headlines in the media reported: “The price of Brent oil dropped to the level of March 2009 - $ 43. The Ministry of Economic Development did not rule out for the first time that oil could go below $ 40, but "for a very short time." Meanwhile, the dollar is already more expensive than 71 rubles, the euro - more than 81 rubles. "
As for the United States: according to one of the versions of the relationship of these fluctuations - the fall in the dollar exchange rate is caused by an increase in consumer demand, an increase in production (in America, oil is the basis of the energy economy), for the existence of which more oil is needed, it becomes more expensive. Accordingly, a decrease in consumer demand, etc. reduces the volume of production and the cost of oil, which causes an increase in the dollar.
The American geophysicist King Hubbert predicted a peak in oil (peak oil is the maximum world oil production that has been or will be achieved, followed by a decline in production). According to the scientist, world production was supposed to peak in 2000. But he proceeded from the technologies of oil production, the information that he possessed at that time.
And if the American geophysicist was right about the 1970 period, then he "almost guessed" over the 2000 period. Oil resources belong to the non-renewable resources of the earth, that is, there are many of them, but they are not eternal.
And if new energy-saving alternatives were not applied, new fields were not discovered and production technologies were invented, it is quite possible that all of us today would be living on the decline of the peak of oil production.
But even today, the situation is not cloudless: Conclusions made by the International Energy Agency (IEA) in the World Energy Outlook 2004: “Fossil fuels currently provide most of the world's energy consumption, and will continue to do so for the foreseeable future. While stocks are large at present, they are not permanent. Oil production is decreasing in 33 of the 48 countries with the highest production ... "
“Another likely explanation for the rising prices is that they are caused by too much paper money, not too little oil. According to this view, sharp increases in prices for all raw materials and real estate indicate rising inflation.
Although in the spring and summer of 2008 the oil price reached record levels in the region of $ 140 per barrel, by the fall it fell below $ 40 per barrel.
In Russia, a decline in production has been recorded, although the government's forecast states that growth will continue until 2030.
Experts also predict that at prices below $ 80 per barrel, profitability will be negative: no one will drill. "
Let us recall 2008 and the oil price of $ 140 per barrel and the fact that in a couple of months the oil rate was below $ 40 per barrel.
At that time, one of the experts' versions was as follows:"When the market for high yielding, but also very risky, structured debt backed by assets in the United States experienced a significant recession due to the mortgage crisis in America, money from hedge funds poured into the commodity markets, which led to a runaway rise in oil futures prices ...", - noted analyst Andrey Kochetkov in December 2007.
The fall in oil prices caused the economic crisis.
There have been several major fluctuations in oil prices over the past 10 years: at the end of 2005 the oil price was $ 60 (at the beginning of the year it was $ 44), then a period of minor fluctuations, and in 2008 (June) there was a sharp jump in the oil price to $ 135, which positively affected the economy and financial situation Russians, but six months later (at the end of 2008) the oil price dropped to $ 43, in 2012 the oil price reached $ 124, since March 2012 the exchange rate ($ 108-110) remained almost unchanged until 2014, then the price for oil falls to $ 56 per barrel, in 2015 there is a further drop to $ 40-43.
In our country, economic well-being largely depends on the price of oil:
“If the share of a country's income is more dependent on the sale of oil, then the national currency automatically becomes the oil currency. In the event of a decrease in oil prices, a budget deficit occurs, and, accordingly, a decrease in the value of the currency.
For comparison: the percentage of budget receipts from the sale of oil and gas products is 48%, in the USA this share does not exceed 1-2%, the same situation is in neighboring China. In these countries, most of the oil and gas produced is sold on their own markets for domestic consumers.
Another country that has an oil currency is Norway. The budget revenue from oil sales is approximately 20-30%. That is why the Norwegian krone has also fallen this year, but, due to the lower dependence of the budget on oil sales, not as rapidly as the Russian ruble. "
That is, the drop in oil prices affects primarily the countries most dependent on the sale and purchase of oil, Russia among them.
The forecasts and verdicts of experts back in 2014 read:
“.. by the end of the year the dollar will cost 60 rubles, the euro - 70. The Central Bank is taking absolutely right measures to stabilize the ruble exchange rate. With the help of this, speculation is reduced, which inflated the artificial dollar exchange rate. However, the main reasons that affect the decline in the national currency remained.
Falling oil prices. This became possible after a series of discoveries and statements. The United States has become the largest producer of shale gas, and may soon become the largest exporter, which will entail a greater decrease in oil demand.
Weak macroeconomics of Russia. This is indeed the case, and now the country's economy is going through its worst days.
The expert put sanctions and anti-sanctions in third place among the reasons affecting the depreciation of the ruble.
The fourth reason is the policy of the US Federal Reserve System (FRS), which has completed the program of quantitative easing (monetary stimulus) and confirmed its intention to raise key rates in the near future ”.
Also, the fall in oil prices, as unofficial sources say, is associated with Russia's aggression (this term means Russia's unwillingness to get closer to the West), its active behavior, which, in particular, America does not like. And the artificially provoked drop in oil prices significantly hits the Russian economy.
The forecasts for the situation are further varied: the oil price will drop to the level of $ 30 per barrel, at best, over the next few years it will drift at the level of $ 30-50 per barrel, but then everything will return to its place, namely - oil will rise in price.
And if some talk about a worsening crisis situation, about the fact that Russia is being squeezed in a grip by ill-wishers, that in 2017 the Russian economy is threatened with a collapse, etc., others say that all this is good for our country, they say, “we will suppress "Let's start developing our production a bit, let's go huddle gardens, weed the beds, ideally, we will break away from the dependence on the sales of oil and gas products, we will switch to the sale of products in other areas," so that the budget is filled from several sources equally, then the ruble and the Russian economy will not be so dependent on the fall in oil prices. "
Wait and see.
Oil prices have been steadily moving down over the past months.
Since the local peak for Brent in June 2014. the drop in oil prices was almost 20%.
According to many experts, this may indicate that a bearish trend has begun on the global black gold market.
What are the reasons for the decline in oil prices?
First, the reluctance of the OPEC countries to cut volumes.
The member states of this organization, in September 2014. daily extracted from the bowels of 30.935 million barrels - the highest figure since August 2013.
And there are no guarantees that in the short term the oil exporting countries will be ready to reconsider their policy regarding the permissible level of "black gold" production.
Secondly, a significant decrease in official prices for exported oil by Saudi Arabia.
For example, tariffs for partners from Asia were reduced by the Kingdom to 2008 levels. - from 0.6 to 1.2 dollars per barrel.
Investors are worried that Saudi Arabia, the largest oil producer in OPEC, will continue to lower export prices in order to maintain its market share.
Third, the significantly increased volumes of oil production by the United States.
According to the US Department of Energy, in September 2014. production of "black gold" in the country reached 8.867 million barrels per day - the maximum since March 1986.
This result became possible, among other things, due to the rapid development of shale technologies.
The International Energy Agency (IEA) does not exclude that in 2015. the daily volume of oil produced in the United States may reach 9.53 million barrels.
This is the highest level in the last 45 years.
Fourth, the expected reduction in the world demand for oil by the end of this year and in 2015. in connection with the deteriorating forecasts for the growth of the world economy.
Fifth, the growth of the dollar against other world currencies and the possible start of the FRS raising interest rates in the near future.
So what will happen to oil prices?
According to experts' forecasts, in the 4th quarter of 2014. we should expect increased pressure on oil quotes.
The high volume of oil production in the world along with continued low demand in the context of a slowdown in the global economy is likely to push oil prices down.
As a result, the market always comes to an equilibrium state.
However, record drops in oil prices periodically occur.
Recall that in 1986. and 1998-99. the cost of "black gold" dropped to $ 10 per barrel, in 2008. - up to $ 40.
It is hoped that this time everything will go without extremes.
According to the assumptions of the Minister of Oil of Kuwait Ali al-Omair, the fall in prices may stop at $ 76-77 per barrel.
The Ministry of Finance of the Russian Federation is more optimistic - they admit the possibility of a short-term reduction in the cost of "black gold" to $ 80-85 per barrel with further stabilization at $ 90.
The fall in oil prices is not a symptom of an imminent global crisis. Quite the opposite, after all the recent cases, when the oil price fell by half, there was an acceleration of global economic development.
The lower the prices, the faster the growth
Oil price surges are destabilizing national economies and financial markets around the world. When the price of oil dropped in half last year, from $ 110 to $ 55 a barrel, the reason was obvious: Saudi Arabia's decision to increase its share of the global oil market by increasing production. But what explains the further drop in oil prices in the past few weeks - to the lows we last saw just after the 2008 global financial crisis - and how will this affect the global economy?
The standard explanation is weak demand from China. The fall in oil prices is considered by many to be a harbinger of a recession either in the PRC itself or in the entire global economy. But this is wrong, although this version seems to be confirmed by a strong correlation between oil and stock markets, which fell to their lowest level since 2009, not only in China, but also in Europe and most developing countries.
Indeed, the predictive value of oil prices is impressive, but only as an opposite indicator: a fall in oil prices never predicts an economic downturn. In all recent cases, when the price of oil fell by half - that is, in 1982-1983, 1985-1986, 1992-1993, 1997-1998 and 2001-2002 - there has always been an acceleration of global economic growth.
On the other hand, all the global economic crises over the past 50 years have followed a sharp rise in oil prices. More recently, a year before the 2008 crash, oil prices nearly tripled, from $ 50 to $ 140. And then they fell to $ 40 six months before the economic recovery began in April 2009.
Anatol Kaletsky Chairman of the Institute for New Economic ThinkingOne of the most important events on the markets in 2015 was the sharp drop in oil prices by 40%. What are the main reasons for the fluctuations in oil prices, and how does their increase or decrease in general affect the economy and stock markets?
At the end of 2015, oil prices fell to a record low in 11 years. Understanding the causes of fluctuations in oil prices can often confuse those outside the commodity market. However, while oil is a much more difficult commodity to analyze than any other, there are several common factors that affect its price around the world.
What makes oil prices fluctuate?
Supply and demand
One of the main factors, as with any commodity, stock or bond, is the law of supply and demand that causes prices to move. When supply exceeds demand, prices fall and vice versa. World oil production is predominantly controlled by OPEC, the Organization of Petroleum Exporting Countries, which has a major influence on oil price fluctuations. The purpose of the organization is to maintain a stable oil price. OPEC pledged to keep prices above USD 100 per barrel for the foreseeable future, but in mid-2014 the price began to fall. It fell from USD 100 per barrel to the current USD 40 per barrel. And OPEC itself has become the main reason for cheap oil. She refused to cut production volumes, which led to a drop in prices.
OPEC as a producer has a huge influence on oil prices, but on the other hand, the price depends on demand. Demand from major oil importers such as Europe, China, India and Japan also affects prices. For example, the fall in oil prices may be due to lower demand in these regions, coupled with a stable supply from OPEC. An oversupply of oil could cause them to plummet.
Production cost
The cost of mining also causes prices to rise or fall. While oil production is relatively cheap in the Middle East, oil production in Canada or the UK, for example, is much more expensive. Once the supply of cheap oil is completely consumed, the price of oil can rise if only oil remains in regions with expensive production.
Weather and natural disasters
This is another factor causing fluctuations in oil prices. Like most commodities, seasonal changes in the weather affect the demand for oil. In winter it is consumed more for heating, and in summer people drive more and use more gasoline. While the markets know when to expect these high demand periods, the price of oil rises and levels off with the start of the season each year. Extreme weather conditions (hurricanes, tornadoes, thunderstorms) can have a physical impact on production facilities and infrastructure, reducing the supply of oil and causing higher prices.
Political situation
Political instability in oil-rich areas can also cause price fluctuations. For example, in July 2008 the price for a barrel of oil reached a record high of 140 USD due to the unrest and fears of consumers about the wars in Afghanistan and Iraq. In another example, if an oil-rich area becomes politically unstable, supplier markets react with higher oil prices to keep supplies available to the highest bidder. In this case, only understanding the shortage of supply can increase prices, even if the level of production remains constant.
US dollar rate
In addition, it is important to note that oil is quoted and traded internationally in US dollars. In general, the fall in the US dollar increases the demand for oil and its price. On the contrary, the strengthening of the US dollar reduces real incomes in consuming countries, reducing the demand for oil and its price.
How do oil prices affect the economy?
Economists disagree when it comes to the impact of rising oil prices on the economy. From one point of view, higher energy costs increase the cost of producing and transporting everything. With a rise in value that slows down production, enterprise revenues fall and the stock market declines.
From a consumer perspective, the rise in gasoline prices frightens those who, seeing the loss of their purchasing power, cut their spending on non-essential goods, which negatively affects the sales of companies. It also has a negative impact on economic growth and stock prices. The counter-argument to this opinion is based on the reasons for the rise in prices. The most likely reason for the growth is strong demand. A strong economy increases the demand for energy, which raises its price.
„
If the economy is growing, the stock market is likely to perform well as well. Thus, the rise in oil prices and the rise in the stock market are the result of the growth of the economy.
When it comes to the impact of falling oil prices on the economy, overall it means good news for oil importers like Europe, China, India, Japan, and bad news for exporters like OPEC, Latin America and Russia. Oil importers benefit from falling prices as the cost of oil imports falls. This reduces the current account deficit. For oil exporters, in turn, the fall in oil prices has the opposite effect - it lowers the cost of their exports and leads to a decrease in the trade surplus.
Benefit from low prices
Falling oil prices help consumers lower their cost of living and save money to spend on more expensive purchases. In most cases, this implies lower transport costs, resulting in lower cost of living and lower inflation. In fact, the fall in oil prices is a free tax cut. In theory, falling oil prices could lead to higher spending on other goods and services, as well as real GDP growth.
However, it can also cause deflation and a decrease in consumer confidence, and instead of spending, they are more likely to prefer to save. In this case, falling prices, instead of increasing costs, leads to a decrease in inflation and the likely onset of deflation, which can be extremely problematic to get out of. Another disadvantage of low oil prices is that it can slow down investment in alternative “greener” forms of energy, such as electric vehicles. Falling oil prices could halt the decline in car use and lead to increased traffic congestion and the negative impact of gasoline use on the environment.
Further expectations
Speaking about the law of supply and demand, in general, we expect that OPEC will still prefer volume over price and will increase production in the near future. However, due to continued significant spending on capex cuts, we also expect healthy demand growth along with negative impacts on US and non-OPEC non-US production. We also do not believe that the lifting of sanctions on Iran will lead to a significant decrease in oil prices. After decades of underinvestment in oil development and industrial infrastructure, Iran will need to attract billions of foreign investment to bring hydrocarbon exports back to pre-sanctions levels. And global investors are likely to be extremely cautious before investing because of the legal and other challenges these investments may face.
In this regard, we expect the supply / demand balance to shift from oversupply in 2015 - 1.9 million barrels per day, to 0.6 million barrels per day in 2016 and ensure a balanced market in 2017.
According to our estimates, the average oil price in 2016 will be USD 45 per barrel, in 2017 - USD 60, and in 2018 and beyond - USD 70. Undoubtedly, unforeseen events, for example, political instability, natural disasters, etc., can lead to more serious fluctuations and high prices in the world oil market.
Gunta Simenovska,
Head of Sales Support Department of the Business Development Department of SEB Bank
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Sources: SEB, Marketwatch, BBC, Forbes, International Monetary Fund, Investopedia
The cost of oil, like other major energy resources, has a direct impact on economic processes in the world. A significant drop in oil prices has become a boon for consumer countries, and almost a disaster for exporters. But is it really that sad? Let's find out what threatens the fall in the price of oil in Russia.
Reasons for the fall in value
First of all, let's look at the main reasons for the fall in oil prices. After all, only by identifying the root causes, it is possible to predict the further course of events, and their consequences.
It's no secret that in 2014 there was a sharp drop in world oil prices, which, by and large, continues to this day, replaced by short periods of insignificant price increases. This phenomenon is already acquiring a long-term character.
Experts name the following main reasons for the fall in oil prices:
- falling demand;
- shale revolution;
- fighting in the Middle East;
- market speculation;
- disappointment of investors;
- strengthening of the dollar.
Each of the above reasons has a different level of influence on the fall in the value of black gold, but at the same time they all contribute to this process.
Detailed analysis of the causes
The decline in oil demand is primarily caused by the crisis phenomena that are now taking place in the world economy. This means that the level of production, and hence the consumption of petroleum products, is decreasing. First of all, this concerns the slowdown in economic growth in the EU countries and China.
The shale revolution has also contributed to the fall in oil prices. Advanced technologies that make it possible to extract shale oil, which were previously practically inaccessible, have led to an increase in supply on the market, which cannot but affect the decline in cost.
It would seem that the hostilities in the Middle East, on the contrary, should contribute to the rise in oil prices. In fact, this was the case in most previous military conflicts. But this time, various groups of militants, in need of live money, began to sell oil produced in the territories under their control at dumping prices. Of course, this fact affects the fall in oil prices, although it is far from the main factor.
Market speculation can affect the drop in oil prices in the short term. In the long run, this factor still plays an insignificant role.
In previous years, the price of oil has skyrocketed. Investors were buying up oil futures en masse. But as soon as the price began to fall, they began to just as rapidly try to get rid of them, which, in turn, added fuel to the fire.
Of course, an objective strengthening of the dollar plays an important role in the fall in oil prices. After all, world quotes are formed against the American currency, and if it rises in price, then the rest of the assets fall in price.
Some experts add political versions to the above list. For example, you can often hear statements that the fall in oil prices was caused by the collusion of the United States and Saudi Arabia against Russia. But these versions are of a conspiracy nature and are not considered by serious analysts.
Timeline of the fall
Over the past decade, the world has become accustomed to high prices for black gold. Thus, in 2008 the price of Brent crude oil reached its maximum and approached the mark of $ 150 per barrel. True, after the start of the global financial crisis, it dropped significantly, but then started to grow again and until mid-2014 exceeded $ 100 per barrel.
But it was from that moment that her new landslide fall began. By the end of 2014, its cost was already in the region of $ 60. And in February 2016, the price reached a minimum, dropping past the $ 30 mark. However, at present the oil price has begun to show growth again, but it is difficult to say whether this is a temporary phenomenon or a long-term trend.
Forecasts
Let's now look at the main forecasts of experts on how the oil price will behave in the near future.
There is no unequivocal opinion among analysts on this matter. Some of them believe that the price of black gold at $ 30 per barrel is the bottom. This will stop the fall in oil prices, and they will go up sharply.
Other experts, on the contrary, argue that the price is quite capable of breaking new records. The most daring of them say that even the cost of $ 20 per barrel may not be the limit. Specialists who share this point of view consider small increases in oil prices that periodically occur as a temporary phenomenon.
Therefore, in the current situation, it is rather difficult to give an accurate forecast about the future behavior of black gold quotes.
Cost implications
Now let's find out what the drop in oil prices threatens for the world economy as a whole and for individual countries. This is very important for understanding the possible economic consequences of this process. Let us dwell separately on how the fall in the price of oil in Russia is threatened.
First of all, you need to understand that there are two types of countries on the world oil market: exporters and importers. The former mainly sell the extracted black gold, while the latter buy. Moreover, it is not at all necessary that those countries that buy oil do not have its reserves on their territories. Thus, the United States and China occupy, respectively, the third and fourth places in the world in terms of oil production. But, despite this, they are mainly importers of this product, since the volume of production is insufficient to cover the needs of these most powerful world economies.
Based on this, we can conclude that for exporting countries, a further reduction in the cost of oil is unprofitable, but for those countries that buy it, it just plays into the hands.
In addition, it should be noted that low energy prices stimulate the development of production. The global crisis slows down the development of economies, thereby reducing the demand for oil. And that means its price. When the price reaches its minimum size, it already, on the contrary, has a favorable effect on the development of industry. It is gaining momentum and requires more petroleum products. This state of affairs leads to an increase in the price of oil. This is how the law of economic equilibrium works.
The economies of all oil-exporting countries are experiencing, to one degree or another, negatively the fall in prices for black gold. But in some states it is completely focused on the export of this raw material, while in others there are other significant sectors of the national economy. Naturally, the first group of countries is experiencing a drop in oil prices in more difficult conditions than the second. These states primarily include Venezuela, Saudi Arabia and other countries of the Persian Gulf.
The importance of the oil industry in Russia
Oil industry revenues make up a significant part of the Russian budget. Although, the share of proceeds from the sale of oil and gas abroad does not exceed 50% of GDP, as some believe, but only about 16%.
But at the same time, it should be taken into account that many sectors in other sectors of the economy are financed precisely at the expense of "oil" money. Thus, financing of other sectors of the economy, and hence their profitability, directly depends on the amount of proceeds from oil sales.
As you can see, the real volume of the indirect influence of the oil and gas industry on the entire Russian economy really exceeds 50%.
What awaits Russia?
Now let's find out what the drop in oil prices means for Russia.
As for any country in which a significant part of the economy relies to some extent on the oil industry, a further decline in the price of black gold or stabilization of its quotations at a low level does not bode well.
First of all, we should expect a decline in GDP. How much it will decrease depends on how serious the drop in oil prices will be. Why should this scenario be expected? First of all, because a significant part of the country's GDP is occupied by direct revenues from the sale of oil, as well as revenues in those areas of economic activity in which funds received from the sale of black gold are invested.
In addition, Russians should prepare for a drop in budget revenues. It is no secret that a significant part of them are funds from the sale of oil and oil products, as well as taxes on these types of goods.
With a further decline in oil prices, the ruble exchange rate will most likely continue to fall. This, in turn, will stimulate inflationary processes in the country, which means a drop in the standard of living of the population.
What to do?
But from any, even the most difficult situation, there is a way out. Yes, this method of solving the problem is not easy and takes much more time than we would like.
In order for Russia not to face the crisis phenomena caused by the fall in oil prices in the future, it is necessary to diversify the economy, that is, to increase the share of revenues from industries not related to the extraction and sale of minerals. It is necessary to take into account that even if this time oil prices rise, this does not mean that after a certain period of time they will not fall again. So the problem, in any case, sooner or later will have to be fundamentally solved.
Collapse or new opportunities?
Thus, the fall in oil prices in the country's economy causes many negative phenomena that can lead to rather disastrous consequences. At the same time, the situation on the oil market is an additional factor that forces the government to follow the path of modernization, reducing the share of revenues from the sale of natural resources in the country's GDP.
If in the conditions of high cost of black gold such a situation could freeze for many years, then the collapse of oil prices forces us to make radical decisions that can lead to significant economic growth.
