by Constantin Radut
Since the start of this summer the global oil market has shown a drop in the price of a barrel of oil, without the estimates pointing to a stop in the downward trend.
Last week the price of a barrel of light crude dropped by USD 1.06 in Asia, and that of the Brent crude by USD 0.63. At the start of this week the North Sea Brent crude had a cost of USD 98.32, pointing to a drop of approximately 15 per cent in recent weeks. In previous months the same type of oil was selling for USD 105-115 per barrel. An analysis conducted by the Capital Economics think-tank estimates that next year the barrel of North Sea Brent crude could even reach USD 90, and in 2016 it could even sell for USD 85.
The conflicts in Iraq and Libya, the aging of drilling technologies in Algeria, the embargo on Iranian oil or the Arab-Israeli conflict do not seem to encourage the oil market, the great producers already feeling the negative impact of this phenomenon. As main causes of the global oil market’s deterioration the analysts point to the following:
The economic situation in China, the second-largest consumer of crude oil in the world. At the end of August China’s industrial production showed a 6.9 per cent growth, compared to 9 per cent in July, representing the slowest annual growth since the start of the financial crisis in 2008.
The precarious economic growth registered in all regions of the world. The International Energy Agency stakes on a rise in the global demand for oil. This rise is yet to appear however. For 2014 the global demand for oil is estimated at 92.6 million barrels per day, because “of the persistent retrenchment of economic activity in the European and Chinese economies, alongside lower-than-forecast demands on the markets in Japan and Brazil”;
The much too high volume of production. Thus, despite political chaos, in Libya oil companies are pumping well over 800,000 barrels. Likewise, in Iraq the production remains constant although the internal war is in full force.
The effect of America’s shale oil. The US has produced 8.6 million barrels per day in August this year. A production level unprecedented since July 1986. The US Energy Information Administration states that a production level of 9.5 million barrels will be reached in 2015, which would mean a new record after the “peak oil” registered in 1970. The American economy’s level of dependence on imported oil has dropped from 60 per cent in 2005 to only 30 per cent today.
Most analysts state that the forecast is “bleak.” That is because the members of OPEC (The Organization of Petroleum Exporting Countries) are not determined to limit or lower their production (in order to maintain their national liquidities) and on the other hand because the global demand is low.
The situation of course seems to favor states that do not own oil resources. For how long however? Currently many economic and political circles, especially in Europe, are content to see large exporters, including Russia, in difficulty. Some of the experts point out that the Euro-Atlantic sanctions against Russia as a result of the conflict in Ukraine could backfire precisely on Europe. Considering that several years of Russia no longer having access to Western technology to improve its oil industry would on the medium term generate a drop in Russian oil and natural gas production and hence a rise in the price of imports to countries dependent on Russia’s fossil fuel resources. Especially since the shale gas “bet” is not foreseen to be won in European states in the next decade of this century.
by Constantin Radut