Record oil prices: what will happen next with black gold?

Brent crude, rising above $ 74 per barrel for the first time since April 2019, sank slightly. Quotes grew in anticipation of a personal meeting between Joe Biden and Vladimir Putin; the price rise continued after the summit in Geneva, now-a slight decline. And yet the prices are high. It affects the policy, as well as the fact that the OPEC+ member countries are disciplined in limiting production. How long it will last, found out Free News.

On the outgrowth

Black gold took off when the world learned that Joe Biden had offered to meet Vladimir Putin. Usually, such summits have a positive effect on the market. Business sees this as a sign of improving relations, and hopes for the restoration of economic cooperation between the two countries.

But above all, oil rose in price because of the OPEC + deal, which is strictly observed. Production is increasing very slowly. In May — by 320 thousand barrels per day, up to 40.4 million. The cartel members fulfilled the agreement by 124 percent. The rest – on 94.

As a result, demand outstrips supply. The difference is covered by the reserves accumulated in the first half of 2020.

The market remains in a state of artificial scarcity.

Last week, the turnover was about a million barrels per day. Now it has been increased to 1.6-1.8 million. “Thanks to the acceleration of the global economy, the quotes broke through the psychological mark of $ 73 per Brent,” the source said. Thus, the price exceeded the pre-crisis level. Fuel consumption, although still below its previous levels, is rapidly recovering. In the midst of the agricultural season, the period of buying cars, air travel became more frequent. According to the forecast of the International Energy Agency (IEA), in 2021, global demand will reach 96.4 million barrels per day, which is 5.4 million more than in 2020. The market will return to the dock like indicators next year. They expect an increase of 3.1 million barrels per day — up to 99 and a half million.

In addition, on Tuesday, the American Petroleum Institute recorded a serious reduction in crude stocks in the United States — by 8.5 million barrels per week. This also indicates a recovery in consumption.

According to the IEA, stocks in developed countries fell below the five-year average for the first time since the crisis began last spring. In July 2020, there was a historical high of 3.22 billion barrels. Since then – a reduction of one million per day. Demand is growing. But the supply is still limited by the OPEC+ agreement.

Therefore, the participants of the transaction, it seems, will have to increase production. It makes sense. Otherwise, other manufacturers, primarily the United States, will take advantage of the situation. A correction is possible due to the “overheating” of the market. In general, the range from $ 70 to $ 77 per barrel of Brent is most likely in the coming months.

The next OPEC+ meeting, which may affect the market, is scheduled for July 1.

Iran confuses OPEC maps

According to the forecast of the largest commodity traders, until the end of 2021, oil prices will remain in the range of 70-80 dollars. This assessment was given at the FT Commodities Global Summit. It is not excluded that the price will rise to a hundred.

From April to June, the market grew by more than 20 percent. Players expect a particularly accelerated recovery in fuel demand in the second half of the year.

In addition, the negotiations on the Iran nuclear deal — another significant factor-will clearly not be completed before the presidential elections in the Islamic Republic. There is a possibility that the new government will take a different position. And this, in turn, will further delay reaching an agreement.

Iran is expected to increase supplies from 2.4 million barrels per day to 2.6 in the third quarter and three in the fourth. However, due to the protracted negotiations, all this is in question.

If Tehran does not restore exports in the short term, OPEC+ will increase production to meet demand.

Meanwhile, prices are still being held back by the pandemic. Investors are concerned about the epidemiological situation in Europe-as if not repeated last year when the lockdown brought down the quotes.

Rising oil prices again save the budget

Market conditions are favorable for the Russian treasury. Export revenues are increasing both for oil companies and for the budget. At the rate of 72 per dollar, the price of a barrel in the national currency exceeds 5,300 rubles. A few years ago, it was about 3,500.

According to preliminary data of the Ministry of Finance, in January-May, the federal budget was executed with a surplus of 312.07 billion rubles. This was achieved due to the excess of actual oil and gas revenues over the planned ones by 28.4 percent in annual terms.​

If oil continues to rise in price and demand continues to grow, instead of the expected deficit of 2.7 trillion rubles, the financial year will be closed with a surplus of more than 500 billion rubles.

However, you should not rely only on black gold. Of course, alternative sources will not replace traditional oil and gas soon, but new technologies are rapidly developing, and by the middle of the century, the energy industry may change significantly.

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Author: Steve Cowan
Graduated From Princeton University. He has been at the Free Press since October 2014. Previously worked as a regional entertainment editor.
Function: Chief-Editor
Steve Cowan

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