On Thursday, May 17, oil prices overcame a psychological threshold for investors at $ 80 per barrel. In the course of trading on the commodity exchange of London, the cost of the July futures on the energy content of the Brent benchmark in the moment reached $ 80.18 per barrel. The last time such a situation on the hydrocarbon market was observed on November 25, 2014.
Since the beginning of the week, market participants have been betting on increasing the price of a barrel to the coveted $ 80, since on Monday, raw materials were gradually added in price, rising by almost one dollar per day. So, on May 15 oil traded above $ 79 per barrel.
“The main reasons for this rise in oil prices are the successful implementation of the OPEC + agreement, as well as the decline in production in Venezuela and the US withdrawal from the nuclear deal on Iran, with further imposition of sanctions on the Islamic Republic,” commented RT on the situation with oil prices leading analyst Amarkets Artem Deev .
In a conversation with RT, the junior analyst of IK “Freedom Finance” Alen Sabitov stressed that the increase in oil prices was also influenced by data on the decline in US stocks of raw materials. “Ahead of the season of holidays in the States, when traditionally increases the demand for gasoline. It is planned to reduce reserves by 10 million barrels of gasoline at the end of the season, which gives impetus to the growth of oil quotations, “the expert believes.
According to Sabitov’s calculations, the imposition of new sanctions on Iran could deprive the energy market of about 1 million barrels of oil per day, raising the issue of the stability of the supply of raw materials, which is now shrinking, among other things, because of problems in Venezuela. So, at the beginning of 2018 in the Latin American country, production decreased from 2.33 million barrels per day to 1.6 million barrels a year.
However, according to Artyom Deyev’s forecast, while keeping today’s price growth drivers in the next one to two months, oil quotes will still be at a high level. Previously, experts from Bank of America did not rule out that in the second quarter of 2019 the price for Brent oil could rise to $ 90 per barrel and in the moment reach the coveted for world investors $ 100. True, experts emphasize that the achievement of price records of the next year will depend on the position of the participants in the OPEC + agreement, as well as the consequences of possible US sanctions against Iran.
Curiously, in its new report, OPEC increased its estimate of the growth in global oil demand in 2018 to 1.65 million barrels per day. Thus, according to the organization’s expectations, this year global demand will be 98.85 million barrels per day. But at the same time, the International Energy Agency (IEA) in the May report, on the contrary, reduces this figure to 99.2 million barrels per day.
According to the IEA study, in March commercial oil reserves in the OECD countries decreased by 26.8 million barrels and reached a minimum value for the last three years – 2.8 billion barrels. It is noteworthy that this volume is 1 million barrels below the average level of reserves over five years – the target value of the OPEC + agreement.
However, according to experts’ forecasts, the reports of energy organizations will not have a significant impact on the further situation with oil prices.
“We expect that Brent crude oil prices will remain above $ 70 per barrel in the next two years. The risks of reducing the supply of raw materials cause concern, as the global economy is growing. In addition, production in OPEC countries fell from 31.78 barrels per day in March to 31.65 barrels per day in April. Reduction of production is also noted in Venezuela, Nigeria, Iraq and Angola, “Alen Sabitov predicts.
The analyst stresses that large oil companies have reduced the volume of investments in new projects, which negatively affects the supply of energy resources. So, now oil companies prefer to distribute the proceeds to shareholders for share buyback programs and dividends.
However, Sabitov does not exclude the correction of prices. According to him, the main risk for the market is the delay in the OPEC + agreement in June, if Saudi Arabia and Russia want to increase the market share due to the withdrawal of part of Iranian oil. However, the latest statements by OPEC members indicate rather the possibility of increasing supply from stocks without expansion of production. The long-term risk is also the reduction in demand due to the high cost of oil and the overall global slowdown in the global economy.
Artem Deyev also adds to the risk factors for the decline in oil quotes and the recovery of production in Venezuela, a record increase in the production of oil shale in the US, as well as the weakening of the geopolitical situation and the softening of the US position on Iran.