Cheap oil shifts the balance of world forces

Baku, Azerbaijan, Dec.22

By Vagif Sharifov - Trend:

In 2015 the US will be the only country which plans to increase oil supplies more than other countries in the world, despite the expectations of decrease or lack of prices growth for the raw materials. The US will increase the supply of oil by 7 percent to almost 14.9 million barrels per day, when all the other producers of raw materials will increase it in average by 1 percent, while many producers will decrease them slightly. Thus, the share of US oil in the world balance of raw materials will exceed 16 percent in 2015 compared to 15 percent in 2014.

The US Energy Information Administration (EIA) forecasts that the total oil supply in 2015 will grow by nearly 0.9 percent to 92.7 million barrels per day, and OPEC's share in this volume will be almost 39 percent. Mexico, Colombia, Norway, Great Britain, Russia, Egypt, Sudan, and a few others will reduce oil supplies in 2015 due to natural or economic reasons.

Demand still grows

The global economy, industry and transport of which are closely tied to fuels and lubricants and the production of oil goods, will continue to rise in 2015, which will require more raw material. Oil consumption in the world in 2015 will grow by nearly 1 percent to more than 92 million barrels per day, and the US will consume oil most of all - more than 19 million barrels per day. The US will increase oil consumption in 2015 by 0.7 percent from 18.9 million barrels per day in 2014. However, there is not a single forecast for today, speaking in favor of the increase in oil prices in 2015 due to increased demand.

Oil consumption in the world in 2015 in comparison with 2014 is as follows (in millions of barrels per day):

Don't wait for $100/barrel

Since early December 2014, the average spot price for Brent Dated was $66.37 per barrel compared to $110.65 in the same period of December 2013. This autumn (September 1 - December 15), the average price for Brent was $84.98 per barrel compared to $109.64 during the same period last year. At the same time, global oil demand in 2014 rose by 1 percent compared to 2013.

International experts in their assessments of oil prices for 2015, do not even mention the oil price of $100 per barrel or more. Such data are presented by Reuters, Forbes, Bloomberg, BBC, ITAR-TASS, and CNBC. In contrast, for example, former adviser to US President Jimmy Carter, Philip Ferleger believes that at the end of 2015, the price for oil could drop to $40 per barrel as well. Most often, experts name the price of $75-$85 per barrel for 2015.

The summary table of expert assessments is as follows:

Which country will suffer the most?

The countries producing together more than a half of the world oil, with the exception of Qatar, Kuwait and Norway, will face the most difficult times in 2015 due to such oil prices. The oil price should be over $100 per barrel for ensuring break-even budget of Libya, Iran, Algeria, Nigeria, Venezuela, Saudi Arabia, Iraq and Russia ($98 per barrel).

Norway can withstand the price of $40 per barrel as well. The situation is slightly worse for Kuwait - ($54 per barrel), Qatar - ($60 per barrel) and the United Arab Emirates ($77.3 per barrel). Such data is provided by the International Monetary Fund (IMF), Deutsche Bank, the government of Angola, Ministry of Finance of Ecuador, as well as Fitch.

The experts of Norwegian Rystad Energy company believe that the decrease in oil prices in 2015 threatens the oil and gas projects worth of over $150 billion, Reuters reported. Rystad has calculated that it is planned to adopt final investment decisions on 800 oil and gas projects with the total cost of $500 billion in the world in 2015, however, one third of them is unlikely to be approved taking into account the forecasted average oil price in 2015 - $82.5 per barrel, RBC said.

Any shelf project with the prime cost of production of a barrel totaling over $30, is likely to be suspended taking into account the current oil prices, according to the company. The projects for the development of oil sands in Canada are expected to be firstly closed if the oil prices remain low. The probability of their implementation is extremely low - all of them require considerable amount of capital investments with long-term return on investments.

IMF brought optimism to the issue related to low oil prices and their impact on the world countries. The Managing Director of IMF Christine Lagarde said she sees no threat to the global economy as a result of sharp decline in oil prices, and believes that it is fairly good growth factor. IMF experts have estimated that the oil prices drooped "80 percent because of the situation in the supply sphere and 20 percent - the situation in the demand sphere."

Pressure on currency

September 4 was the last day of 2014 when the spot price for oil was in the trend of the year - $101.21 per barrel of Brent. The exchange rate of Russian ruble, which dropped more than the other currencies in the world in autumn of 2014, was slightly more than 37 to the US dollar on that day. The statistics shows that the average rate of fall of ruble to dollar from September to December (11.55 percent) is almost similar to the average rate of fall in the spot price for Brent (11.2 percent).

The table below shows the dynamics of oil prices, the value of Russian ruble and the exchange rate of AZN to USD for comparison.

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Vagif Sharifov, is an oil markets expert, development director at Trend Agency. Follow him on Twitter:@VagifSharifov