The combination of news from the United States and Libya, as well as concerns about a trade war has led to the sharp decline in oil prices over two-and-a-half years. However, these oscillations are almost not noticed
Photo: Atef Hassan / Reuters
The next round of trade war, the United States and China, the events in Libya and statements by Washington about Iran has led to new global consequences for the world economy — a sharp, though short-lived, decline in oil prices. Brent (Russian Urals is its derivative), the price of which on July 10 reached $79 per barrel, is now trading at $73-74. The rate of decline of the quotes was a record two and a half years. However, in terms of the budget rules, the effect of these shocks on the Russian economy is not critical: the ruble at the end of the oscillations showed a sharp decline, and the budget this year is balanced if oil is not above $50 per barrel.
USA and Libya
The collapse occurred in the afternoon of 11 July, however, he stopped closer to the end of the day, and on Thursday, 12 July, Brent was trading around $73-74, gradually recovering after the shock (the level of quotations practically did not fall lower than the last close of trading). Bloomberg shortly after the fall of quotations linked him to another round of trade war. On Wednesday, the United States has issued a new list of goods from China, which will be introduced fees 10% — because of these measures under the tariff restrictions will be goods amounting to $200 billion in China in the answer has promised to file a complaint against Washington’s actions in the WTO to take countermeasures.
“Oil prices fell, despite a significant reduction in inventories in the United States, as fears of a possible shortage in the market diminish,” — wrote in the review analyst at Sberbank CIB Mikhail Sabe. “A negative trend was deepened by the statement of US Secretary of state Mike Pompeo that the United States may in exceptional cases allow some countries to buy Iranian oil and after November 4, when in force U.S. sanctions. Essentially, this means that the loss of Iranian supplies will not be as significant as expected, that is, less than 1.5 million barrels. a day,” he explains. Thus, due to sanctions oil production Iran will not fall more than on 1 million Barr. a day to 2.8 million, the analyst predicts. Iranian oil exports falls on a monthly basis as India to embargo against Iran, and the import of American raw materials by Indian firms, by contrast, is growing — this factor will be able to offset the decrease in purchases of crude oil by China in the case of aggravation of the trade war, said RBC analyst on oil and gas Sova Capital Mitch Jennings.
The main trigger of the collapse of prices was the message of the National oil Corporation (NOC) of Libya, said Jennings. NOC on Wednesday announced the imminent reopening of the oil terminals of RAS lanuf, es-Cider, Zuetina and Hariga after they came under the control of the Libyan national army (LNA) and were transferred to the provisional government. Since the end of June the ports held by the insurgents, who blocked the supply of raw material with capacity of 850 thousand barrels. per day, reported by the NOC.
“Thus, mining in the country, expected by the end of July will grow from the current 0.5 million barrels. per day to 1 million barrels. in day (previously it was assumed further fall to 0.3 million barrels. per day),” explains Sabe. These two news (the situation in Libya and the statement Pompeo), who came almost at the same time, given to understand that in the second half of the market will be an additional 1 million barrels. a day, which previously was considered “fallen”, adds the analyst.
The level of oil prices that followed the collapse, can survive for a long time, since the drop in prices was caused by fundamental market factors, statements by the NOC in Libya and Pompeo in the United States, said RBC senior analyst Financial Uralsib Alexei Kokin.
At the level of speculation
But a sharp decline was not only fundamental factors. Lower prices could really spur the anxiety of market participants regarding a possible tightening of the trade war, said Kokin. It can cause slower growth in China and the neighbouring economies, and thus almost zero expected in 2018-2019 of the increase of consumption in China by 400-500 thousand barrels. in day, the expert added.
The drop in the price of Brent was speculative because it provoked political statements, said Raiffeisenbank analyst Andrei Polishchuk. In the short term prices may go up because of the sanctions against Iran, and in the long term should be reduced due to the increase of production in OPEC and the USA (1 million barrels. a day in each case), and also because of possible rejection of the extension of transactions on the production cuts of OPEC in early 2019, he says.
OPEC and countries that are not members of the organization, including Russia, in late June agreed to increase oil production by 1 million barrels. a day. This was an attempt to return to the initial agreements: at the end of 2016, the parties to the agreement agreed to reduce production by 1.8 million barrels. per day compared with the level of October 2016, but by may 2018 transaction was completed by 150% due to the sharp decline in oil production in Venezuela.
Decrease in quotations and spurred OPEC monthly report, published yesterday, noted in the review, the economists of Nordea Bank Tatyana Evdokimova and Denis Davydov. The cartel reported a significant increase in production in Saudi Arabia and “noted the lack of a risk of supply shortage on the horizon 2018-2019,” the analysts write.
The ruble fluctuations in the oil reacted with restraint. On the evening of 11 July, the dollar strengthened from 61,7 RUB (17:45 GMT) to 62.4 RUB (21:18 GMT). However, on Thursday morning, the course was made up of 62.1 RUB, but the intraday swing was not as dramatic — in the region of 20:30 GMT the dollar was trading at 62.2 rubles
In Russia there is a budget rule that all oil revenues of more than $40 enter the reserves. The Finance Ministry has repeatedly stressed that thanks to this mechanism, the government has managed to “decouple” the rate of the ruble on the price of raw materials. Regarding the budget, at the primary level, i.e. before the execution of the obligations on debt service, it in 2018 already be balanced at a price of less than $50 per barrel, said the “Main directions of the budget, tax and customs-tariff policy” of the Ministry of Finance (*.pdf). This is one of “the lowest levels among the countries of major exporters of hydrocarbons”.
According to Kokin from Uralsib Financial, fall in prices will not affect Russia, because to change the behavior of the Russian oil and gas companies require a much larger price fluctuations. Current conditions are favorable for the Russian oil companies — the prices are high, and the ruble is weak, said Polischuk from Raiffeisenbank: the price of oil in rubles is much higher than before the crisis. The oil companies are ready and are likely to launch new projects, since their profitability is very attractive, made Polishchuk.