Oil prices come back to May level

Oil prices come back to May level

Oil futures rose today after official figures showing U.S. crude inventories fell more than expected.

The prices of October futures for Brent oil have risen by $0.43 (0.8%) to $53.12 per barrel on the ICE Exchange in London, which is the maximum since May 25.

The September futures for WTI oil increased by $0.28 (0.56%) reached $49.84 per barrel at the New York Mercantile Exchange (NYMEX), Interfax reported.

U.S. oil inventories dropped by 6.45 million barrels last week, the government data showed, steeper than the expected decrease of 2.2 million barrels.

The Organization of Petroleum Exporting Countries raised forecasts for the amount it needs to supply in 2017 and 2018 by about 200,000 barrels a day for each year, according to a report from its secretariat in Vienna.  OPEC also lowered estimates for rival supply, by 50,000 barrels a day in 2017 and 90,000 a day in 2018, following weak output in the U.S. and Canada last quarter.

A leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, speaking with a correspondent of Vestnik Kavkaza, said that at the moment it cannot be predicted with a high degree of certainty that oil prices will stop at some level. "The long-term trend is that oil prices look like a kind of curved line that goes up and down. Its the upper and lower bounds can be predicted more or less accurately - $55- $45 per barrel. Just a month ago, the oil price was below $50 per barrel, it was constantly changing in the range of $45- $47, now it raised above $50 per barrel," the expert explained.

According to him, the reasons for such dynamics became clear now. "The price change algorithm is more or less settled. When oil prices rise, the US drilling rigs are being launched, as they are becoming profitable again. The output start to grow, prices start to decline, because of an oversupply and then it is followed by an output decline. It can last from a few weeks to several months. Finally, oil prices decline to $45 per barrel, and drilling rigs stop, an output starts to decline in the US, and we see the increasing growth, which opens a new cycle," the leading analyst of the National Energy Security Fund said.

"But at the same time there is a long-term trend - the growth of oil consumption in the world. Global oil consumption grows literally every day. The first and main drivers are China and India," Yushkov described the situation.

According to the expert, some radical changes are possible when the annual volume of production equals the annual volume of consumption. At the moment, he noted, the offer slightly exceeds demand, but it looks like in the end of the current year or early next year the offer will finally equal demand, and the balance will be restored.

Yushkov said that the existing level of oil prices of $50- $55 per barrel is rather positive for Russia, as the Russian budget 2017 based on the price of $40 per barrel, so any higher oil price is an additional income for Russia.

"For other countries, the situation may be different: Venezuela needs oil price of almost $200 per barrel to make up the budget," he said.

In general, it cannot be denied that oil producers feel uncomfortable after the price of $100- $120 per barrel, and the current $50 is a very serious shock for them, the expert admitted. "And that's why a coalition of OPEC + is trying to influence the market. Saudi Arabia, Iraq and Iran want oil prices to be higher, because the budget 2017 based on the price of $40 implies a budget deficit of 3%. In order to have a budget with zero deficit, we need a price closer to $60," the leading analyst of the National Energy Security Fund pointed out.


Vestnik Kavkaza

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