The global demand for oil over the past three years has increased by 1.5 million barrels per day, chief economist of BP in Russia and the CIS, Vladimir Drebentsov, said in a meeting with reporters on Nov. 7.
“The demand for oil is growing at a rate of one and a half times faster. This is due to a variety of factors. First of all, it is the result of lower prices. Oil prices for last three years were lower than in the previous period," Drebentsov said.
According to the economist, given that recently oil prices have increased, this will affect demand and its growth rates will gradually decrease.
As is known, the price situation in the oil market in the last two years has been defined by the decision of OPEC and some countries that aren’t formally a part of the organization, but agreed to cut production together with OPEC.
“It was the decision made in November 2016, when a number of countries agreed to reduce production in order to stabilize the situation in the oil market,” he said. “Gradually, the goal of reducing production by the agreed 1.8 million barrels per day was achieved. Moreover, by the spring of 2018, production cuts were much more significant. This happened because - in addition to production cuts within the quotas agreed by the Vienna Group - of an uncontrolled decline in the oil production in Venezuela.”
Oil production in Venezuela, as the expert said, decreased by 700,000 barrels per day, not because this country was a member of the group, but because the socio-economic situation in the country developed in such a way that oil production fell at a rapid pace.
“In general, the net reduction in global oil production was largely due to Venezuela,” he added. “That is, on the one hand, the market was affected by the fact that oil production by the countries of the Vienna Group was declining. On the other hand, oil production from hard-to-recover deposits, for example, from shale deposits in the US, continued and continues to grow. By July of this year, this increase amounted to almost 3 million barrels per day.”
In the medium term, it is worth expecting that geopolitical factors will have a significant impact on oil prices, Drebentsov said.
“This is related to what will happen in Venezuela,” he noted. “For now, no one knows what the situation with the oil production will be in that country in the future. It can shrink and it can stabilize."
"The second geopolitical factor is that the US has resumed sanctions against Iran. Sanctions cause Iran’s oil to leave the market. The question is how much oil will leave the market? On average, it is estimated that the global oil market will lose about one million barrels due to reduction in exports from Iran. Everything will depend on how the consumers of Iranian oil in Europe, and especially in Asia, behave .”
He added that so far, the reserves in Saudi Arabia are enough to cover these volumes of Iranian oil.
He also added that if in the worst case there is a maximum drop in oil production in Venezuela and the maximum volume of Iranian oil leaves the market, almost all the available reserves in the world will be spent to compensate for these missing volumes.
“The oil market isn’t accustomed to exist without reserves, due to the fact that something always happens in the world,” said Drebentsov. “For example, oil pipelines periodically explode in Nigeria, social conflicts continue in Libya. That is, reserves serve as a kind of safety cushion for possible cataclysms in the exporter countries. It turns out that now these reserves can be reduced to an absolute minimum.”