The oil market in 2015: the winds of change

The oil market in 2015: the winds of change

Analysts ‘ forecasts regarding the prospects of oil prices is rather pessimistic. The search for the causes, impact analysis, reducing investment in new projects and improving the efficiency of old – problems that will have to continue to decide in 2016.

MOSCOW, 18 Dec. 2015 the outgoing year was a turning point for oil prices. Now is hard to imagine, but back in the summer of 2014 a barrel of Brent crude cost $ 115 per barrel. However, by the beginning of 2015, oil prices began to decline and in January for the same Brent gave 48.5 dollars per barrel.

By may the price of oil increased slightly to its highest level in 2015 at $ 67, but soon continued to fall, until it finally “broke” in early December, a mark in 40 dollars for barrel Brent. By mid-December oil confidently aspired to the minimum indicators over the last seven years: the market saw and 37.8 USD per barrel Brent, and 35.6 per dollar for WTI.

Unstable oil market, unstable and the expectations of analysts, experts and market participants on the prospects of oil prices. After a serious decline in prices in December, analysts urgently revised their projections for 2016: Moody’s in December downgraded the price for Brent with 53 dollars to 43 dollars.

Pessimistic about the developments in the oil market and the Minister of Finance of Russia Anton Siluanov who in 2016, the decline in the price of oil to 30 dollars per barrel, and the head of the Central Bank Elvira Nabiullina, rated as a high probability of prices remaining below $ 50 for a long period of time.

The search for the causes, impact analysis, reducing investment in new projects and improving the efficiency of the old, fierce struggle for markets, the tax pressure from governments of the countries‒oil exporters ‒ are the themes around which was concentrated the main forces of the oil industry in 2015, all these problems that they will have to continue to decide in 2016.

Price drove the prey

The fundamental driver of the decline in oil prices analysts, experts and market participants is called the excess supply in the oil market with stagnating demand and further production increase by the countries importing oil.

According to analysts, with data of international price agencies, in 2015, the world produces about to 96.3 million barrels of oil per day, while demand remains at the level of 94.1 million barrels per day.

Despite the lack of a demand, countries‒the oil exporters continue to boost oil production. Thus, the Organization of countries‒exporters of oil (OPEC) regularly exceeds the quota for oil production at 30 million barrels per day on average by 1.5 million barrels a day, and at a meeting in Vienna on 4 December actually acknowledged the level of production acceptable to all member countries of OPEC.

In November, OPEC increased its oil production to three-year high: by 0.23 million barrels per day to 31.7 million barrels per day, according to the December report, citing data from secondary sources. Production is increasing in Russia ‒ production of oil with gas condensate in Russia in January-November 2015 rose by 1.37% compared to the same period last year ‒ up to 488,26 million tons, according to CDU TEK. At the same time slightly decreases oil production in the U.S. during the first week of December, according to the energy information administration of the U.S. Department of energy (IEA), it was down 0.41% to 9,164 million barrels per day.

The announcement of the imminent lifting of sanctions by Western countries against Iran have added problems on the already saturated oil market. Immediately after the sanctions are lifted, the country plans to increase oil production by 500 thousand barrels per day, which equals about half of the current exports. Iran plans to return to the oil market only in 2016, but news of his return played a role in the decline in oil prices this year.


To cut production voluntarily nobody wants OPEC keeping production quotas at the meeting on 4 December, has again demonstrated its unwillingness to act as regulator of the oil market, production growth hopes the U.S. Secretary of energy Ernest Moniz, on the inadvisability of reducing the oil production was mentioned by the Minister of energy Alexander Novak, threatened on their own “very soon” to increase oil production to 4 million barrels per day, Iranian oil Minister Bijan Zanganeh.

The Ministers of OPEC countries to the end of the year is increasingly its readiness for a dialogue with countries outside the organization for a joint decision on production cuts. The Saudi government said in November that it was ready to cooperate with other oil producing countries to ensure stability in oil prices. About dialogue with other countries and said OPEC Secretary General Abdullah al‒Badri, the Iraqi oil Minister Abdel Abdul‒Mahdi, consultations at the expert level for 2015 was conducted by representatives of OPEC and Russia. Even a hint of concrete steps towards a joint reduction in oil production would be enough to restore oil prices, but nothing definite the market is not heard.

The market saw: countries‒oil exporters-to take control of the markets. European oil refineries, traditional buyers of Russian Urals, begin to buy oil the Middle Eastern countries. In September, the head of “Rosneft” Igor Sechin caught the attention of the oil market to the first oil shipments from Saudi Arabia to Polish refineries Plock and Gdansk, then the Agency Reuters citing its sources reported that the Swedish oil refiner Preem bought the first in the last two decades the party of Saudi oil. At the same time state oil company of Saudi Arabia continues to cut prices on oil deliveries to North‒Western Europe.

Russian oil companies have their problems

Sechin said in September that Russia should make every effort not to reduce the share of oil supplies to the world markets. However, in conditions of low oil prices, Western sanctions, adjustments to tax legislation in relation to the oil companies it will not be easy.

Tax maneuver in the oil industry, which entered into force on 1 January 2015, suggested that will increase the severance tax on oil, while the rate for calculating export duties on oil will decrease from the current ‒ 42% to 36% in 2016. However, low oil prices have forced the government to reconsider the plans.

The Finance Ministry in September proposed to adjust the tax maneuver is to keep the rate of export duty on oil at 42%. According to the Finance Ministry, this measure will give to the budget of the Russian Federation in 2016 196 billion rubles of additional income. After a brief debate, the government in October introduced a bill to freeze the reduction of export duties on oil and the state Duma at plenary session in mid-November adopted it in first reading.

For the oil companies of the Russian Federation such decision was another difficulty, but its effects will be felt only after a year. Freeze export duties on oil in 2016 creates the risk of falling oil production in Russia for three years on 25 to 30 million tons annually, reacted to the decision of the government the head of “Rosneft”. “Gazprom oil” can increase oil production in 2016, but not so rapidly as could be done without adjustments to the tax maneuver, said General Director of “Gazprom oil” Alexander Dyukov. LUKOIL in connection with freezing the export duty will pay an additional 40 billion rubles in taxes in 2016 and could cut the investment program for 12-14%, explained the company’s President Vagit Alekperov.

Buy — sell

In spite of all the obstacles that arise in the oil market in Russia and abroad, oil companies in the country to develop their investment projects to attract the participation of foreign partners and buy new assets.

Particularly active in the field of cooperation with foreign partners in 2015 has shown “Rosneft”. The company managed to sell 15% of shares of “Vankorneft” Indian ONGC in September. According to Reuters, the deal cost the Indians more than 1.25 billion dollars. Continued and to be completed in 2014, the negotiations with Chinese CNPC about purchase of 10% “Vankorneft”.

In November, Rosneft closed a deal with BP for the sale of the British company’s 20% stake in LLC “TAAS-Yuryakh Neftegazodobycha” for $ 750 million. At the same time “Rosneft” has not stopped and has promised to bring in another JV partner. In December, the company announced the closure of another deal ‒ this time, buy the Total 16,67% in a refinery in Schwedt.

In turn, LUKOIL is actively involved in negotiations with the middle Eastern countries ‒ Iraq and Iran. In December, Alekperov reiterated the interest in resuming of work of LUKOIL on the territory of Iran, on the part of the Anaran block. After the conclusion of the agreement between the six and Tehran in LUKOIL said that the company still retains a significant interest in oil and gas projects of Iran.

There were, however, in 2015 and bad examples of cooperation between Russian companies with foreign partners. So, in early March the UK authorities blocked the deal to buy 12 oil and gas fields in the North sea the company LetterOne, owned by Russian businessman Mikhail Fridman. Buy fields was to be held in the framework of the acquisition of LetterOne oil and gas unit RWE — DEA AG for 5 billion. The authorities ‘ apprehension that Fridman and his partners may get in the future in the sanctions lists, has led to the sale of LetterOne’s assets in the North sea to the Swiss chemical company Ineos.