WASHINGTON, 5 February. /Corr. Andrew Shitov/. The price of oil should return to a level of $50-$60 per barrel. Such forecast was made in an interview with TASS, the chief economist of the world Bank Middle East and North Africa (MENA) Shantayanan Devarajan.
The full text of the interview is available below.
How do you assess the current state of the oil market from the point of view of prices? What can we expect in the future – both near and more distant?
According to our forecasts, world oil prices this year on average will be about $37 per barrel. However, it is important to note that these estimates a lot of uncertainty. I saw the projections (the financial Corporation Morgan Stanley) to $20 per barrel, and the other is about $50 per barrel.
In the long run, as the withdrawal from the market of producers of shale oil and the narrowing of the proposal (as well as accelerating growth in China, Europe, etc) I would expect the increase in oil prices to $50-$60 per barrel.
What can you expect as a result of returning to the market from manufacturers such as Iran? How will this affect prices?
We simulated this situation using a global model of General economic equilibrium, in order to isolate the effects of the return of Iran to the markets. We find that the increase in Iranian oil exports by 1 million barrels a day (and they can achieve this in about a year) would lead to a decline in world oil prices by 13%, i.e. approximately $3 per barrel. The assessment is based on the assumption that other oil producers would not reduce extraction and oil export.
How is it reflected in oil-producing MENA countries, the transformation of the U.S. into an energy exporter? How viable, in your opinion, the oil extraction method of hydraulic fracturing (fracking) in the United States in the current market conditions?
The transformation of the U.S. exporter will mainly affect oil-producing MENA countries using the prices on the world oil market. But the U.S. will become a major exporter of oil only if the level of oil prices will increase. But such a development would be beneficial to the oil producers in MENA. In the current environment a significant part of the industry, extracting oil in the USA by hydraulic fracturing, unprofitable.
There is a theory that Saudi Arabia has unleashed the current price war to oust competitors from the market. Please comment if you can, this hypothesis, and if not, tell me: how do you like this strategy from the economic point of view? How efficient is it? What are the limitations?
Even if not to comment on the intention of Saudi Arabia, the fact remains that Saudi Arabia decided not to cut its oil exports, when oil prices collapsed in late 2014 (and remained low throughout 2015). From an economic point of view, this strategy is viable only on the condition that Saudi Arabia will be able to build their fiscal policy stance so that she is not exhausted foreign exchange reserves. According to estimates, the current level of costs of such reserves it for five years.
OPEC raised the forecast for global oil demand in 2016
The Saudi economy itself is suffering from low oil prices. How, in your opinion, vulnerable (or resistant)?
The Saudi economy sustainable to the extent that is able to adjust fiscal policy, adjusting to low oil prices. They already announced the reduction of fuel subsidies.
Whether OPEC and outside OPEC to agree on production cuts – the question is probably mostly political. But how you, as an economist, such a scenario seems likely? What would be the basis for this decision?
I have not studied the decision-making process within OPEC and can’t answer this question.
What other important factors am I missing?