End of 2015: What will happen to oil prices?

End of 2015: What will happen to oil prices?

Baku, Azerbaijan, Dec. 25

By Vagif Sharifov - Trend:

The oil market testified a phenomenal fall in commodity prices in 2015 over the last 30 years. Since 1987 the oil price has never dropped as it happened this year by 47 percent compared to 2014. For decades, only twice the oil prices reduced during three or more years in a row - in 1991-1994 and nowadays - in 2013-2015. In all other cases, an increase was always observed for a couple of years after the fall in oil prices. The maximum growth reached 60 percent in 2000 compared to 1999.

The oil prices over the last 30 years are as follows:

Year

Average price in $/barrel for Brent spot

+/- in percent compared to the previous year

2015 (according to the data as of Dec. 21)

52.77

-46.71

2014

99.02

-8.78

2013

108.56

-2.75

2012

111.63

0.33

2011

111.26

39.76

2010

79.61

28.94

2009

61.74

-36.31

2008

96.94

33.82

2007

72.44

11.17

2006

65.16

19.41

2005

54.57

42.63

2004

38.26

32.62

2003

28.85

15.45

2002

24.99

2.2

2001

24.46

-14.65

2000

28.66

60.11

1999

17.9

40.28

1998

12.76

-33.23

1997

19.11

-7.41

1996

20.64

21.27

1995

17.02

7.31

1994

15.86

-6.76

1993

17.01

-11.96

1992

19.32

-3.6

1991

20.04

-15.65

1990

23.76

30.33

1989

18.23

22.26

1988

14.91

-19.54

1987

18.53

-

Data on the Brent spot FOB: EIA

Many experts are skeptical about the oil price recovery in 2016. Taking into account the manipulation, rather than any free market mechanisms, has been observed in the sharp drop in oil prices since September 2014 up till now, many market players think that the Brent price will average $53 per barrel in 2016. Although some experts find this forecast too optimistic, believing that Brent may fall up to $15-25 per barrel.

Several factors may affect the fall in prices in 2016:

- The US, which will start supplying the WTI to the European oil refineries as from January;

- Iran, which will likely to sell oil with a large dumping, given Tehran covered by international sanctions for a long time;

- The pressure from Saudi Arabia, willing to expand its market share even by reducing subsidies for the local market as a result of a decrease in dollar proceeds.

Brent price forecast for 2016:

Company

Forecast in dollars per barrel

Moody's

43

EIA

56

JP Morgan

51.5

Hess Corporation

60

The Wall Street Journal's poll conducted among 11 banks

57

Chinese Academy of Sciences

50-65

Lukoil

50

Except for December, when on average the Brent price dropped up to $ 35 per barrel, this year the average oil price reaches around $53 per barrel in 2015. In fact, this is the lowest average oil price over the last 10 years.

The average oil price has reached $ 91 a barrel since 2005, by permanently adapting the economies of many countries to the high dollar income and expenditure. The oil price projected for 2016, almost similar to that in 2015, hampers the state budgets of many world countries to be profitable.

Fiscal break-even oil prices:

Country

2015 ($/barrel)

2016 ($/barrel)

Algeria

96.1

93

Bahrain

107

105

Iran

87.2

70.4

Iraq

81

75.9

Kuwait

49.1

51.8

Libya

269

207.6

Oman

94.7

97.5

Qatar

55.5

57.8

Saudi Arabia

105.6

95.8

UAE

72.6

67.5

Data: IMF

Since 2004, the last time when the oil price was at its lowest point throughout the last ten years, Azerbaijan, as an exporter of light oil, effectively invested dollar revenues into the development of its own economy. A part of the money was spared in the State Oil Fund of Azerbaijan in various currencies, and a part was allocated for the construction of transport infrastructure, the development of non-oil sector, as well as the IT development.

Given the fact that in 2015 and in 2016, according to the current data and the current forecasts, the average price for Brent will amount to $53 per barrel, this will make it possible for Azerbaijan to keep the level of economy, compensate for the missing dollar earnings at the expense of the non-oil sector, transit transportation of goods, including the Chinese ones to Europe.

Vagif Sharifov is an analyst, expert in oil and energy markets.

Follow him on Twitter: @VagifSharifov

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