Daily Management Review

OPEC can't control oil prices anymore


On the morning of July 10, a barrel of the Mediterranean brand Brent traded in London at $ 78.5. In the afternoon, the September futures were already worth $ 79.06 per barrel on the London Stock Exchange ICE.

This growth would not look so alarming if the major oil-producing countries had not taken serious steps to maintain a balance in the market and stabilize prices earlier.

In June, the OPEC + member countries agreed to increase production of oil by 1 million barrels per day to avoid overheating of the market due to falling production in Venezuela, Lebanon and the risks associated with US sanctions against Iranian oil. However, this decision had practically no effect on quotes. Having slightly dropping to $ 74.15 per barrel on June 25, the price for Brent again took an upward trend the next day, accelerating to $ 79.5 in peak days.

Officially, the US oil embargo on Iranian oil will be imposed on November 4, but officials at the State Department openly call on the allies to seek alternative suppliers and warn of secondary sanctions against those who disagree with the oil ban.

In response, Tehran threatened that it would close the Strait of Hormuz, through which oil exports from the Persian Gulf. And this is a fifth of the world's oil. Although this is not the first such threat from Iran and few believe in its feasibility, such statements also added nervousness to the market, just like the increasingly popular forecasts from the world's leading experts that oil is rapidly moving towards the bar at $ 150 per barrel.

So, analysts at Sanford C. Bernstein & Co (SCB) noted in their report that such a jump in oil prices could occur due to a decrease in investment in exploration, which will lead to a shortage of raw materials in the market. Analysts Bank of America Merrill Lynch warned about the same in their May review. According to their forecasts, the oil deficit will be 630,000 barrels per day already this year, and will climb up to 300,000 barrels per day in 2019.

The head of Saudi Aramco, Amin Nasser, in an interview with the Financial Times said that the supply crisis in the oil market in the coming years could arise because the industry's biggest players, such as ExxonMobil, Chevron and Shell, focused investments on shale and other short-term projects, which will not allow creating sufficient reserves to meet the demand for oil until 2040.

"The world is still dependent on traditional oil," Nasser said.

Traditional raw materials, while produced by the world's oil giants, with their own financial resources and government support, are unlikely to be forced out of the market; they will continue to co-exist with slate projects, the expert adds.

Meanwhile, the growth of oil prices is being underpinned by the strike of Norwegian workers of the oil and gas industry, which started earlier on Tuesday, July 10.

As the industry publication Sysla notes, now there are 700 people participating in it, but next week another 900 oilmen working on the Norwegian continental shelf can join the strike.

President of the United States Donald Trump is not tired of criticizing OPEC in his twitter for rising prices, but the cartel’s members say they can’t be in charge of everything.

"You cannot blame OPEC alone in all the problems of the oil industry," said UAE Minister of Energy Suhail Al Mazroui.

"There are things that are beyond our control, such as geopolitics, as well as the volume of extraction of shale oil and Canadian sands," he said. According to experts, the accident at the oil sands extraction enterprise of Canadian Syncrude Canada, as well as data on the seasonal reduction of oil reserves in the US, also contributed to the situation.

Experts doubt that prices will fall in the foreseeable future as the pressure on the market will be insignificant.

source: bloomberg.com