Maintain Economy ― 3 factors why oil will stay cheap
Oil prices in the near future can break out of the range of $33-37 per barrel and, after breaking through the upper border, to go in the range of $42-46. They already tried to do yesterday. So far not very successfully. On the market a record number of long positions, that is, players expect price increases. About it says in the program «Replica» economic observer Alexander Kireevskii.
Since the end of last month oil prices rose. For the first time in two months, the peak value of recent weeks has exceeded $37 per barrel. Along with this has grown and the oil players hope that the positive momentum continues.
What made them think and do on this large of a bet? Let’s face it. Factors several. Negative sentiment about the situation in the oil market still abound. Stock and scares the bears ‘ insistence on major oil producers to agree on newwelcome oil supplies to the market. The public part of the process began in mid-February agreements in Qatar and is still ongoing. On this occasion there were already a lot of the scepticism. Supposedly, all agreements will remain on paper. But the mere desire to do something with the supplies is a huge step forward to cease price war in the market. After all, until recently the main suppliers of oil to the market and to hear wanted nothing about coordination of their actions. All saw in one another only competitors for market share. But life forces to find a compromise.
It is understood and OPEC members, and the so-called independent producers, which includes Russia. By the way, one of the main arguments of the reluctance of OPEC to cut production was the argument for not participating in the restriction of the supply of other suppliers. It seems that the compromise is really found. Otherwise wouldn’t the President of Russia to bring together heads of national oil companies and convince them to cut oil supplies abroad. Rather, you commit them to the level of January of this year. Of course, the captains of the oil industry agreed with this proposal. Although by all appearances, they don’t really want to assume such obligations.
Indeed, in a price war in the market need to increase supply to maintain revenues. Need it and our budget. Representatives of the largest companies even refused to comment on the situation. They asked the President not to increase their taxes, and to be able to execute all production plans for this year.
So, apparently, while really early to expect that the agreement on the limitation of the mining act. Also unclear to the end position of Iran.
The second factor that influenced the mindsets of market participants, is the information that the USA in December for the first time in the last few years has reduced the production level. Everything comes more data on shale producers with the price of oil. At the international conference of oilmen in Houston many of them complained about their hard life. Particularly small companies are dissatisfied with the situation. So, the founder of one of them gave the example of his withering. Two years ago the company had 17 rigs in the past — 8. Only two now operate. And this situation is about a third of the companies. If prices do not rise, then all of them are potential bankrupts. Of course, companies reduce costs, are hedged on the market.
But really no one knows what really costs kancevica. There are really a lot of fog. Numbers and by the companies themselves and experts. But the range is very wide: from $25 to $60 per barrel. It is clear that very different costs from various companies. They depend on the scale of the company, and the quality of the fields, and logistics, and so on. And very different figures on the cost of shale oil. One study calculates an average price of $36. If so, then in General the oil shale industry in the USA, it turns out, operates at a loss, since the prices of crude oil in recent times are kept below this level. Interesting, and how long can it last?
Last year the Americans were acting brave is not reduced the production, but now, it seems, the ice was broken: the slate began to tremble. But yet at the same conference in Houston, representatives of the industry made optimistic statements, saying that the shale revolution will continue, despite the machinations of rivals, which they consider primarily the Saudis. Well, we’ll see.
But one thing is clear: shale suppliers in a very difficult financial situation, and then it will only get worse. And mass bankruptcies in the near area. Here and scares the speculators, speculating for a fall in the cost of oil, this situation of the oil industry in the United States. And suddenly and the truth of the American proposal would be drastically reduced!
No, of course, the rapid growth of prices should not be expected, because, once again, to increase production of the technologically kancevica will be easy. For example, if prices rise above $50 per barrel. It turns out, the Americans act as a kind of mega-regulator of the market, as is done in the financial sector Central banks. We must pay tribute to the USA: many years ago they planned and now continue to implement this global operation. Actually took control of the global oil market not only through Finance but also through physical delivery. And it is unlikely they will stop low prices. They will continue to invest billions of dollars in oil shale extraction until you conquer the whole world market. For them it is first and foremost a political project, and then business.
So the era of high oil prices will not happen soon.