Favorable conditions have been created for the development of new oil price indicators

6 august 2018

New oil price indicators are being developed in all the main regional markets - in the USA, the Middle East, Russia and China, write Analytical Center experts in their new energy bulletin.

The experts believe in each case there is different motivation. As an oil importer, China tries to drive down the mark-up in its market and promote the national currency while oil exports try to create a transparent indicator for the oil they are selling. There have not been that many successful attempts to create price indicators, but changes in the regional make-up of oil production and consumption around the world have created favorable conditions for the creation of new oil price indicators. Thus, as exports of oil from the USA have increased, the Intercontinental Exchange (ICE) is considering creating a new type of futures contracts with physical deliveries in Houston seeing how WTI trading for the most part reflects the condition of the domestic market in the USA. However, as the global demand for oil is shifting towards Asia, the issue of developing price indicators for the Asian market is becoming especially important, the experts believe.

There is also work underway in Russia to create its own price indicators for the global oil market, the analysts note. The main factors that the experts say hold back the development of a Russian indicator include geopolitical risks, fears of potential trading participants regarding the consistency of the quality of Urals oil and lack of taxation preferences for non-residents. According to the analysts, it is for these reasons that the development of a local price indicators is taking so long.

As for compressed natural gas used as motor fuel, its use in Russia has gone up fifty percent over the past five years, but it is still below expectations, the experts note. "The super fast growth in gasoline and diesel fuel prices over the past year and a half and increased attempts by the state to promote natural gas vehicles have increased the effect of switching to compressed natural gas as fuel. However, the development of electric vehicle, such as city buses for example, as competitors to natural gas vehicles both in terms of the hip factor and environmental friendliness may very well be preventing natural gas from being more widely adopted as fuel for motor vehicles," the analysts write.

The experts also review the energy transformation strategy of the European Union. In June, the European Commission, the European Parliament and the EU Council agreed the revised goals for the development of the energy system by 2030. Compared with the original plans, the targets for the share of renewable energy in total energy consumption have been increased significantly (from 27% to 32%) as have the targets for the reduction in the consumption of primary energy (from 27% to 32.5% relative to the baseline scenario). In the second half of the 2010s the European Union's progress in achieving their energy goals has been rather uneven and yet the new plans suggest we should expect to see natural gas and coal consumption in the EU drop by a further 10-15%. At the same time, the EU is not insisting on a radical slashing of the use of coal in the EU countries the way it demands that other regions around the world completely dump coal and go full natural gas, the experts note.

For more see the bulletin "New Price Indicators in the Oil Market".

For the other energy bulletins see Publications.