Black gold devalues directly before our eyes

Oil prices on the world stock exchange are breaking previous records

Oil prices on the world stock exchange are breaking previous records. Almost every day the news agencies inform us of another low point. A year ago, when prices were concentrated at about $60 per barrel, such forecasts were ridiculed by many. However, it appears they’re now coming true. Belarus isn’t part of the group of petro-states, i.e. those who live primarily on the profits of the hydrocarbon trade, but low prices significantly affect our economy. Oil products account for a considerable share of our exports while low prices for exported petrol lead to low incomes.

In 2015, Mozyr Oil Refinery completely shifted to manufacture of AI-95 petrol

Forecasting is a thankless task. World analytical agencies and banks seem to compete as to who could make the lowest assessment, the worst prediction of $10 per barrel, voiced by analysts at the English Standard Chartered Bank. No one wants this low price but, after recent unsettled world events, it’s difficult to suppress doubts, since there are more than enough reasons for the price of the resource to be cheaper. These include the removal of sanctions from Iran, the appearance of ‘reserved’ oil on the world stock exchanges from the USA, and the conflict between Riyadh and Tehran, as well as continuous pressure on the manufacturers of shale oil.

Recent news describes how a buyer of one of the rare varieties of American oil demanded that the seller pay him $0.5 per barrel to take it. A year ago, it cost $13.5 while in January 2014, when prices for black oil were still high, it was $47.6 per barrel. Unlike highly promoted brands such as Brent, WTI or Urals, the North Dakota Sour oil brand is a lower quality variety with a high sulphur content. Presently, American oil pipes are in full use and manufacturers were obliged to transport the resource using trucks and railway transport which significantly increases their expenditure.

Oil extraction in the North Dakota oil fields totalled fewer than 15,000 barrels per day. For comparison, in the western part of the state is the Bakken shale formation, which annually produces 1.1m barrels of low-sulphur oil.

Low oil prices lead to low prices for oil products, so in order to receive the same profit it’s necessary to process more. The National Statistical Committee (BelStat) summed up the previous year’s results: in January-November 2015, oil refineries exported almost 15.25m tonnes of oil products and earned $6.26bn. In comparison, in January-November 2014, our oil refineries earned $9.18bn yet sold a smaller amount. 

We also extract oil of course, but in modest quantities: around 1.5m tonnes per year. Director General of the Mozyr Oil Refinery JSC, Anatoly Kupriyanov, is also astonished at the price drop for resources, “Everyone keeps their net costs secret, as well as their price per barrel, including us. No one knows the exact figures; each company has their own, including Belorusneft. However, I think it will be a serious problem for everyone if the oil price drops lower than $25 per barrel,” he recently announced in an interview. According to Mr. Kupriyanov, the price of $20 per barrel can be viewed as the lowest possible price; ‘however, this may lead to a serious collapse in oil extraction which could later lead to a sharp growth in oil prices’.

The oil price has almost nowhere to fall. According to experts, the net cost of extraction of the Iranian black gold is about $10 while that in Saudi Arabia reaches $4-10 and in Russia, $15-17. Even the net cost of the shale oil in the USA reaches $20 at present. It means that the lowest limit has been reached; it would be better to close the oil derrick than to reduce the price further.

It’s just well that we’re not a petro-state. Most of those countries are used to high level of imports compensated for by revenues from oil sales, thus ensuring a surplus of current transactions. Now, when revenues have fallen, this surplus may become a deficit and they will have to ensure a surplus of capital transactions accounts. If the situation doesn’t improve, the choice will be limited to either taking loans or spending reserves.

By Alexander Benkovsky

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