The worst is over: why experts are expecting the increase in oil prices

The international energy Agency and Goldman Sachs issued reports on the current state of the oil market and its immediate prospects. The IEA and analysts of the investment Bank came to a similar conclusion: the reduction of production not only stopped the decline of oil prices, but will contribute to growth in the near future. Whether the growth is sustainable depends largely on the agreement between OPEC and other major oil producers to freeze production at the level of January.

The bottom is covered

The world price of oil could see the light at the end of the “long dark tunnel”, said in its monthly report the IEA. Agency experts remind that the price of Brent increased from $28,5 per barrel in mid-January to $39,8 at time of writing (Friday on the stock exchange ICE Brent was trading at $40,4). Prices have risen to the highest level in three months, but there is no guarantee that the worst is over, warns the Agency.

Among the factors that support oil prices, the IEA calls the decline in production in Nigeria, Iraq and the UAE and the recent weakening of the dollar. Oil production by OPEC in February fell by 90 thousand barrels per day, to 32,61 million barrels. a day. However, this was partly offset by the growth of oil production in Iran is 220 thousand barrels. per day: production in this country has reached a four-year high to 3.22 million barrels per day (but Iran only exports 1.4 million barrels).

February 16, Russia, Saudi Arabia, Venezuela and Qatar have agreed to freeze oil production at the level of January, if the agreement will join other major exporters. According to experts IEA, the implementation of that agreement is unlikely to have a significant impact on the market and the prices in the first half of 2016: “We can’t know how it comes out actually. In any case, it is unlikely that the agreement will have an impact on the balance of supply and demand essentially in the first half of 2016”.

The balance of supply and demand in the oil market may begin to recover in case of reduction of oil production volumes in the U.S. and other non-OPEC countries, reports Bloomberg referring to research of analysts at Goldman Sachs. According to the forecast of experts, in the second quarter of 2016 the price of a barrel of WTI crude oil will vary from $25 to $45 per barrel (versus $20-40 in the first quarter), and in the second half of the year rise to $40 per barrel. On Friday, the barrel of WTI cost $38,7, while a month earlier it fell to $26.

Disruptions in supplies from several countries outside OPEC, will contribute to the reduction of the oversupply of oil on the world market, according to Goldman Sachs. The experts of this Bank, like the IEA believe that the price minimum of years passed.

Intractable Iran

To the February agreement, Russia and the three countries of OPEC had agreed to join some 15 countries, which in total accounted for 73% of export of oil in the world, said Russian Minister of energy Alexander Novak. Implementation of these agreements would reduce the overproduction of oil in the world 1.3 million barrels. a day, he argued. OPEC estimates the oversupply of 1.8 million barrels. a day.

Legal binding agreements about the freezing of production is expected in late March — early April. But the date and place of the meeting and the participants in the negotiation process, said the representative of the Russian Ministry of energy. According to various sources, she can pass as 20 March in Russia, and another day in Vienna or Doha.

On Thursday, 10 March, Reuters sources said the reluctance of Iran to accede to the agreements about the freezing of production of the main reason of canceling this meeting. “Why now to meet the Ministers? Iran says they won’t take,” — said one of interlocutors of the Agency. Another source of Reuters claimed that Iran had agreed to freeze oil production at the level of 4 million barrels. per day the country produced before the introduction of sanctions against it.

Novak plans during his visit to Tehran on March 14 to convince Iranian counterparts, said RBC a source in the Ministry of energy. An official of the Agency confirmed the Minister’s visit to Tehran on Monday, adding that he plans to hold a separate meeting with the Minister of oil of Iran Bizhan Namdar Zangane. According to “Interfax”, is also scheduled to meet with the Minister of energy of Iran Hamid Chitchian, the co-Chairman Russian-the Iranian intergovernmental Commission and Minister of communications of Iran, Mahmoud vaezi.

Cautious optimism

Respondents RBC experts do not expect a breakthrough in the arrangements and their observance following the meeting of oil producers, but share the optimism of the IEA and Goldman Sachs that the market has passed the low oil prices in January and will not return to him.

“If the parties to a future meeting of OPEC and oil producers agree to freeze or cut production, in a short period the price may jump up, but then will naturally fall again,” says oil and gas analyst IK “Aton” Alexander Kornilov. When you commit the decision to freeze oil production at the level of January 2016, the market will find its balance before the first quarter of 2017, he warns.

Kornilov predicts that in the next one or two months, oil prices will range at $30-35 per barrel, primarily due to reserve growth in the USA (from 26 February to 4 March, the stocks in the U.S. peaked in 1930, an increase of 3.9 million barrels., to 521,9 million barrels). But the average price, according to his forecast, will be in 2016 above $40 per barrel.

Analyst Raiffeisenbank Andrey Polischuk also expects fluctuations in oil prices in the near future (in the range of $35 to 50 per barrel). But in the absence of serious arrangements, prices could fall. “The bottom on oil prices not yet achieved. Now, after a month of negotiations, the oil producers of statistics will show us the same data on the growth of production and reserves of oil, which will inevitably bring prices to a lower level”, — said the expert. However, Raiffeisenbank did not change its forecast for year-end — $39 per barrel.

Almost the same prediction of $39.5 per barrel by the end of 2016 — give 25 banks and research firms surveyed by Bloomberg since the beginning of the year. The maximum forecast from Citigroup $52, the minimum at Prestige Economics with $27,3.

The rapid decline of oil production, reducing the surplus, inevitably stimulates an increase in prices, noted in a letter to investors of his investment Fund Astenbeck Capital Management LLC legendary trader Andy Hall. “There are reasonable grounds to believe that the market has bottomed,” says Hall. According to him, the world oil market is close to balance, prices are now at levels that reduce offer.