Will the continuing falling price of oil kickoff of a global recession?
By Vagif Sharifov
Monday Morning oil market review by Vagif Sharifov
Oil prices
The average OPEC basket price last week stood at $43.30/bbl, the US WTI for the March settlement $45.59/bbl, Brent for the same month delivery $48.79 per barrel. The average price for Azeri Light oil, exported from Azerbaijan via the Turkish Ceyhan, Georgian Batumi and Supsa ports to Italian Augusta, was $49.69/bbl. The forecasts from the various experts, analysts of banks, oil and consulting companies indicate that the average oil price seems to be 60 dollars per barrel during this year.
The signals from OPEC raises hope of the oil market showing some stability in the nearest future. OPEC’s head Abdalla El-Badri thinks the oil price will not go to $20/bbl. “I think the price will stay at where we are now,” he said in an interview with Bloomberg Television at the World Economic Forum in Davos last week. “We have seen this before - prices coming down very fast and go up very slow. But prices will rebound.”
Anyway the expert society hasn’t seen yet any de facto positive shifts of the oil market. According to a new survey from ConvergEx Group, the price of oil is about $17/bbl away from signaling that a global recession is inevitable, MarketWatch reports.
Middle East
The World Economic Forum in Davos last week has brought a lot of new insights on the oil market. Despite the falling prices most likely the Middle East countries are going to increase oil production to compensate their losses. The countries could follow Iraq whose top official supports the oil production increase to compensate for collapsing prices. “Because of the new challenges, especially the price of oil, Iraq has to try its best to raise it oil production and exports,” Deputy Prime Minister Rowsch Nuri Shaways said at the Forum, Bloomberg reports.
Iraq has already lost about half of its revenues because of the slump in oil, Shaways said. This is obvious taking into account that the oil price should be over $100 per barrel for ensuring break-even budget of Libya, Iran, Algeria, Nigeria, Venezuela, Saudi Arabia, Iraq and Russia ($98 per barrel). The situation is slightly worse for Kuwait - ($54 per barrel), Qatar – ($60 per barrel) and the United Arab Emirates ($77.3 per barrel). So if the oil market will be declining further more this year Middle East oil producers could see $300 billion export loss. That’s why Iraq is thinking about the oil production increase.
USA
Declining crude oil prices have forced three major industry companies to lay off workers, AP reports. Apache Corp., Baker Hughes and Schlumberger have begun laying off employees in response to the oil price crash, The Tulsa World reports. Apache's job cuts will likely impact several hundred employees of the Houston-based oil and gas producer. Schlumberger is letting go of 9,000 of its approximately 120,000 employees. Baker Hughes, which has a research-and-development center in Claremore and other sites in Broken Arrow, Sand Springs and Barnsdall, also has announced planned job reductions.
U.S. drillers have taken a record number of oil rigs out of service in the past six weeks. The count was down 55 this week to 1,366, Bloomberg reports. Analysts including HSBC say the decline shows that the OPEC is winning its fight for market share and slowing the growth that’s propelled U.S. production to the highest in at least three decades.
Russia
The world’s biggest oil platform has begun commercial production at the Sakhalin-1 offshore project in Russia’s Far East, RT reports. The Berkut oil rig is expected to extract 4.5 million tons of oil per year. The Sakhalin-1 Consortium was formed in 1996 and made up of the US major ExxonMobil (30 percent), Japan's Sodeco (30 percent), Russia’s Rosneft (20 percent) and India's ONGC Videsh (20 percent).
Russia's deputy prime-minister Arkady Dvorkovich insists his country will find its footing and ultimately emerge as a winner despite the collapse in oil prices that has wreaked havoc on the nation's economy, CNN reports. He said low oil prices would force Russia to be smarter about its future energy investments. The country would also diversify, he said, by seeking new customers in Asia as Europe tries to reduce its dependence on Russia's natural gas supplies.
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