BRUSSELS, 5 January. /Corr. Victoria Dubrovina, Denis Dubrovin/. As a result of a new sharp conflict between countries in Persian Gulf oil will rise in price. Anyway, until the conflict only on the diplomatic level. With this assessment agrees as experts of the independent analytical centers of Brussels and the economic service of the European Commission.
The decline of industry
“Objective market factors do not contribute to the growth of oil prices in the foreseeable future,” – said in an interview with TASS, one expert Director General of the European Commission on energy.
These basic “objective market factors” two: the declining level of industrial production in the world, including in China, and the presence of excess oil on the market with the existence of wide possibilities of substitution of the Saudi supply.
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The factor of decrease in industrial production is self-evident. If in 19 countries of the Euro area this indicator in 2015 on a monthly basis ranged from recession to growth and back, while remaining at an extremely low post-crisis level, the Chinese economy demonstrates the decline in industrial production during the last ten months of last year.
In the us economy the recession continues for the second month. Thus, the objective demand for oil continues to decrease, pushing prices down.
The excess production
With regard to the factor of oil supply, experts note that Saudi Arabia is a major player, in which a loss actively supports oil prices at a reduced level. 2014 Riyadh has consistently resisted calls to cut oil supplies to the market, trying to squeeze out U.S. producers of shale oil, for which prices less than $50 per barrel are below the level of profitability.
These actions have dealt a significant blow to the economy of Saudi Arabia itself, the budget deficit which in 2015 reached 15% of GDP.
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Having gone to such extremes, its goal Riyadh has achieved only partially. Shale oil production in the U.S. is really largely frozen, but it with minimal cost may be renewed if Saudi Arabia decides to cut production and prices will go up.
On the other hand, emerging from under the sanctions Iran is interested in its share in the world market, so lower oil prices, supported by Saudi Arabia, also directed against the Iranian competitors. At the first opportunity interested in returning to the world market Tehran will try to oust competitors albeit with price losses.
Overall, the situation in the oil market perfectly characterize the U.S. data about the state of their strategic oil reserves, which at December 25, 2015 by 9.9 million barrels, which exceeded the 2014.
Manipulation of prices will not
Thus, under the current oversaturation of the market Saudi Arabia continues to maintain low oil prices, but even in the event of a change policy of Riyadh and reduce their oil production, this volume can be quickly filled by other producers. And it is the conditions of political instability only contribute to this.
If in more peaceful years the producers could afford the orderly reduction of oil production to maintain prices, but today the tensions and mistrust between the Persian Gulf countries dramatically complicates any attempts to manipulate oil prices, which in conditions of excess supply leads to the persistence of low oil prices.
The markets are aware of all these trends, therefore, remain calm in the face of rising tensions in the Persian Gulf.
Penalty and the crisis
Exchange rates of main countries-exporters of oil in 2015
Relations between Riyadh and its allies, on one side, and Tehran on the other, deteriorated sharply following the unrest that erupted in Iran on the night of Saturday to Sunday. The crowd, enraged by death in Saudi Arabia known Shiite preacher Nimr al-Nimr, organized pogroms in the Saudi missions.
On Monday it became known that the authorities of the Kingdom was followed by Bahrain and Sudan, which, like Riyadh broke diplomatic relations with Iran, demanding that the Iranian diplomats to leave the country.
United Arab Emirates, in turn, downgraded relations to the level of attorneys, and also reduced the number of accredited Iranian diplomats.