November 25, 2018, 10:21 pm / Finance

What's happening to oil prices

Quotes fell below $60 per barrel for the first time since October 2017 Vitaly Petlevoy

Oil prices described an arc and returned to the values of October 2017 / Viktor Drachev / TASS

“Oil prices are falling. Fabulous! <...> Enjoy! Now $54 [per 1 barrel. WTI] was $82. Thanks to Saudi Arabia, but let’s go even lower!” – US President Donald Trump wrote on Twitter last Wednesday, and already on November 23, traders and funds staged a sell-off in oil.

Brent oil futures fell below $60 per barrel, falling 6.07% to $58.80. The American grade WTI fell by 7.71% to $50.42 per barrel, according to Bloomberg data. Now oil prices are the same as in October 2017. The reason for the collapse was Saudi Arabia’s statements about increasing oil production, a record level of production in the United States - the country produced 11.7 million barrels for the second week. raw materials per day – and the introduction of soft sanctions against Iran.

As a result, over 1.5 months, Brent fell in price by 31.9% from peak values at the beginning of October this year - $86.29 per barrel, and WTI - by 34%. “The rise in oil prices was opportunistic in nature,” said Energy Minister Alexander Novak. He and the Bank of Russia predicted a return in oil prices to $50–55 per barrel. In the long term, the price will drop to $50 per barrel, Novak said. According to the Central Bank's baseline forecast, oil prices will gradually decrease from current levels to $55 per barrel. by 2020–2021

Following oil, the ruble also fell. On November 23, the dollar strengthened by 0.57% to 66.19 rubles, and the euro – by 0.2% to 75.05 rubles.

“The market fears that Saudi Arabia will not decide to cut production due to pressure from Trump, who gained the opportunity to influence the kingdom due to the murder of journalist Jamal Hashkogi,” says Dmitry Marinchenko, director of Fitch’s corporate department. “Given the growth in shale oil production this and next year, this will lead to a surplus in the market,” the expert continues. “In addition, prices are weighed down by uncertainty about the pace of global economic growth.” He believes that next year prices will stabilize at a level that is more or less comfortable for both Saudi Arabia and the United States - $60–70 per barrel. The next meeting of OPEC members and countries that have joined the cartel and agreed to reduce oil production will be decisive, he notes.

Russia should not yet fear a collapse in the oil market. “Nothing special will happen to Russian oil producers: at the current exchange rate, the price of oil is 3,250 rubles. “is a completely normal level for doing business, developing companies and paying dividends,” says Raiffeisenbank analyst Andrey Polishchuk. Oil industry workers will no longer cut capital investments this year and next; perhaps they will select new projects more carefully. He believes that the fall in oil prices was due, among other things, to softer sanctions against Iran and mixed signals from OPEC members on production.

“Participants in the oil market have doubts that an agreement to reduce production will be reached,” says ACRA analyst Vasily Tanurkov. However, in his opinion, there is a high probability that OPEC and other countries, including Russia, will nevertheless agree on some joint actions from the beginning of next year, when the previous agreements expire. Now the market is rather trading on emotions, the price may fall even lower, Tanurkov believes. In the worst case, the decline could continue until the meeting of representatives of OPEC and other countries on December 6 in Vienna. Increased demand in 2019 will support oil prices, but most likely we will witness serious fluctuations in commodity prices, Polishchuk believes.

Rosneft Chief Executive Officer Igor Sechin explained at the end of October (oil then cost $76.89 per barrel) that “in the short term, “treasury wars” in the United States could lead to a serious imbalance in the oil market.” The oil market is balanced at 100 million barrels. per day, current oil prices are comfortable for business and reflect the balance of supply and demand. But even this relative stability is threatened by US actions, Sechin said. The volatility in the oil market “caused by the American administration” will increase instability in Libya and the sanctions-related reduction in production in Venezuela.