A significant increase in demand for oil is expected in the near future

18 august 2015 | Penza-Press

“Even though sanctions are being lifted from Iran, the Chinese economy is slowing down and the oil drilling in the US has stabilized after having declined somewhat earlier in the year - all factors that are putting a serious downward pressure on oil price - a significant increase in demand for oil is expected in the near future. In August, the International Energy Agency estimated that 2016 is going to see a record high demand for oil for the past five years. This is going to prop up the prices,” Alexander Kurdin told the Penza-Press news agency.

Alexander Kurdin
Alexander Kurdin
Department for Fuel and Energy Sector

According to the expert, August 17 saw oil prices continue to fall during trading. However, the latest decline in oil prices did not come as an out-of-the-blue shock. The forecast for the socio-economic development in Russia in 2015 developed by the Ministry of Economic Development early in the year assumed an average annual price of oil of USD 50 per barrel, which reflects the current situation in the global market and as for the annualized average price, it has been holding at USD 55 per barrel in 2015.

The USD to RUR exchange rate is currently slightly higher than expected (RUR 65 per USD rather than RUR 60 per USD). Inflation is also slightly higher than expected at 15-16% rather than the anticipated 12%. So all in all the situation is quite challenging but it is manageable: the Russian Government is ready for this kind of scenario.

Of course, a lot is going to depend on what happens to the oil price. For the time being, most projections are at USD 55-60 per barrel for 2015 and at about USD 60 per barrel for 2016, so there is currently no significant decline in the cards.

This oil price is, of course, far from optimal for the Russian economy in general and for the country’s budget specifically. The relatively comfortable level would have been around USD 80 per barrel.

The only course of action now is to try to adapt to the new realities. The reserve fund that the Government has so far been using rather frugally compared to how liberally it was tapped during the previous crisis, can tide Russia over for a few more years to come, by which time the situation in the market should improve as the current excess supply of oil in the global market gets absorbed by rising demand.

Source: Penza-Press New Agency