Expert: Oil Prices Will Not Grow in the Near Future

27 november 2015

Alexander Golyashev, the Expert of the Analytical Center, was the moderator of the first session of the 10th annual Congress ‘Crude Oil, LPG and Petroleum Products Trading and Transportation – Oil Terminal 2015.’

'Despite various theories explaining the current dynamics of oil prices, the key factor is the mismatch of demand and supply of oil in the market. The slowdown in oil demand due to the general deterioration of the economic outlook in both developed and emerging countries led by China overlapped sharp increase in oil supply, primarily from the United States. The US in the first half of 2014 moved from the third to the first place in terms of oil production, and is ahead of traditional leaders - Russia and Saudi Arabia,’ said Mr Golyashev in the report ‘Current dynamics and prospects of world energy markets and Russian energy exports.'

In 2015 the situation did not change. Despite the gradual stabilization of production in non-OPEC countries, including the United States, its level is still significantly higher than in 2014. Moreover, OPEC countries increased production, as they do not want to give up their shares of the world market. As a result the excess of oil in the world market at the end of 2015 will be even higher than in 2014, and the pressure on prices from rising volumes will remain, according to the expert.

In 2016 the excess in the oil market may remain, which will restrain prices. Only in 2017 supply and demand will start to approach, surplus in the market will start to decrease and oil prices will start to increase. Although first three quarters of 2015 show that even in the face of low prices many manufacturers, including the United States and a number of OPEC countries (especially Iraq and Saudi Arabia), continue to increase its oil production.

One of the key indicators of the US oil industry - the number of oil drill sites, which characterizes near-term prospects for preservation / increase of the volume of production in the country, is in a clear empirical correlation with the level of WTI oil prices. When the price is passing the $60p/b mark (up or down) with a certain delay occurs a change of the drilling activity trend - respectively, from the reducing number of drill sites to its increase or vice versa. Thus, there is a number of threshold rates that helps ‘navigate’ in the current environment. The threshold rate of $60 p/b is connected to drilling activities in the US, $80 p/b corresponds to the level required to maintain expenses of Saudi Arabia (as of 2014), $40 p/b, according to the research by Wood Mackenzie, will lead to numerous industrial closures and following increase of prices, said Mr Golyashev.