Russia and the OPEC must influence world oil price

The analysis of the current oil prices indicates that from January, 4 to February, 19 of 2016 the world price of, for example, Brent oil has exceeded 30 US dollars per barrel and varied from 30 to 38 USD. In the period of 15 - 21 January, the price was lower than 30 USD and shown minimal value of 27,88 USD since 2004. In general, the average Brent oil price amounted to 32,41 US dollars per barrel. Price dynamics is represented in the table 1. 

Current situation with the world oil price is absolutely unacceptable due to its non-allowance to form the debt-neutral budget of manufacturing countries. This budget plays a key role in economic development and performance of social obligations. Oil industry in general is also under the negative influence of the situation. For example, the 2016 budget of Russia was calculated with 3% deficit of the GDP at expected year-average oil price of 50 US dollars per barrel. Moreover, today the prices of 20, 30, 40 USD are taken into account. Kazakhstan has set 40, Azerbaijan – 50, Angola – 48 and Nigeria - 38 US dollars per barrel. 

Traditional oil extraction in the North America barely holds an acceptable level, but reduction of drilling rigs for shale gas extraction indicates crises in this sector. 95% of Venezuela budget depends on oil earnings. Oil barrel should cost not less than 77 US dollars to ensure profitability of Mexico’s energy projects. Bolivia, Columbia, Ecuador, Trinidad and Tobago also fully feel the drop in raw material and energy prices. For the lossless budget of Saudi Arabia, oil must cost 98,3 US dollar per barrel; for Oman and Bahrein the price is 96,8 and 89,8 USD respectively.  

Today many analysts agree that realistic oil price have to be not less than 50 US dollars per barrel. At the same time, the experts in the oil sector speak about 60-80 USD. No prize for guessing that high oil production and superfluous market offer against decrease in consumption apply strong pressure to the world oil price. In order not to give up the competition, major oil market players do not reduce production and sales volumes, but on the contrary, constantly increasing them. This lock-up situation continues for more than a year and has led to the world oil price started to break through the threshold of 30 US dollars per barrel. 

In the current conditions, changes in oil prices will depend on ability of major market players (Russia and the OPEC members are among them) come to an agreement. Today countries negotiate not about reduction in oil extraction, but about “freezing” the extraction on achieved volumes. In the current February, Russia, Saudi Arabia, Qatar and Venezuela agreed to fix volumes on the level of January 2016 after other countries’ support. 

Currently, Kuwait, Iraq, Iran and Nigeria have endorsed the agreement on keeping the extraction on the level of January 2016. As is noted in the OPEC, European Union, Russia and China are engaged in dialogue, as well as Mexico and Norway are engaged in negotiations. The USA was also invited for negotiations concerning freezing of the oil extraction level. According to the experts, these measures may adjust the world oil prices. 

Supplementary information:

13 countries are included in the OPEC: Algeria, Angola, Venezuela, Indonesia, Iraq, Iran, Qatar, Kuwait, Libya, Nigeria, United Arab Emirates, Saudi Arabia, and Ecuador.