OPEC countries’ prolonging of agreement on limiting of oil extraction for another 9 months likely wont help to substantially decrease the surplus of “black gold at the world market. Due to this Russian analysts forecast some lowering of prices on oil and strengthening of dollar against ruble and tenge.
We remind that the agreement on limiting of oil extraction for another 9 months was signed at another meeting of OPEC in Vienna on May 25th. Participants of the meeting agreed to preserve the volume of decrease at the level of 1.8 million barrels per day. However, investors as observers say, are disappointed. Russian financial analysts talked to us about reasons for disappointment, and also gave us their forecast on oil prices and their influence on rates of ruble and tenge.
“At the end of November 2016 OPEC called for its cartel members and some other oil-extracting countries that aren’t part of the bloc (including Russia) to sign an agreement on decrasing of oil extraction by 1.8 million barrels a day for another half a year (until June of 2017). Precursors were falling oil prices. At the moment of signing of agreement prices of Brent went down to 46 USD per barrel, and throughout 2016 quotations reached 18 dollars. The desired result for such decision was cutting of global reserves to five-year minimums with the goal of stabilization of oil prices. Based solely on the fact of accepting this, the growth made up 57 dollars per barrel, and on average prices were able to go back to the lvel above 50 dollars”, – the head of the analytical group TeleTrade Central Asia Sregey Polygalov, reminded (pictured on photo).
Now it was decided to prolong the effect of this agreement for another 9 months. But will it justify the hopes put on it by OPEC countries? “It is hard to reach considerable changes in the difference between demand and supply” – Polygalov thinks.
He brings up the following breakdown: “Overall reserves of oil as of today exceed the demand by 325 mil. Agreement assumes cutting down by 1.8 mil. barrels a day. And now the most interesting part. In the time of the effect of this agreement, USA grew production by 850 thousand barrels/day, Lybia by 316 thousand barrels, Iran by 500 thousand barrels (the last two countries are part of OPEC, but do not participate in the agreement). All together, growth of volumes of extraction made up 1.66 mil. barrels. So the difference of 134 thousand barrels remains. Judging from this, in 9 months it will be possible to cut down 36.18 mil. barrels. The remaining surplus will be 288.8 mil. barrels. And this is not counting the fact that US announced that by the end of the year they are expecting to grow the volume of extraction by another 600 thousand barrels, up to 9.9 mil. barrels a day. In this case, the result will be that the overall volumes of production will not only be decrease, but rather will grow by 300 th. barrels/day.
How could this affect oil prices? In Polygalov’s opinion, it can have negative effect: “most likely, for some time the agreement will hold oil prices in the 50-52 USD/barrel range for some time, but in the mid-term perspective the most forecasted range of prices will be 45-50 USD/barrel of “black gold”.
The main financial analyst of ANALITIKA online Kazakhstan, Evgeniy Chekai partially agrees with him. “Analists from Goldman Sachs lowered their forecast on average oil prices WTI for 2017 from 54.8 to 52.9 USD/barrel. Futures on both oil markers have lowered to the minimum of three weeks during previous trading session due to growth of extraction in Lybia. Investors are afraid that growth of raw material production in the countries that are not part of the global pact may offset the effect from decrease of extraction within the OPEC deal”. – Chekai thinks, specifying that “overall current falling of oil prices carries more of a temporary character” and “corridor 51-55$/barrel is acceptable for many countries, including Kazakhstan”.
As for the effect the OPEC agreement has on rates of ruble and tenge, here opinions differ. Polygalov thinks that “in the backdrop of backwards corelation, USD should receive support”. “Ruble and tenge are raw-material currencies. Constructing of budget of both countries is based in receiving profit from oil sales. Thus, if the oil will be getting cheaper then both ruble and tenge will also be getting cheaper against USD (in which oil is valuated). If the forecasts on oil prices will prove true, then the rate of USD/RUR couple will be trade in the corridor of 62-69 rubles per dollar, and USD/KZT will be trade in the valuations of 325-330 tenge for the unit of American currency”.
But in the opinion of the analyst of Forex Optimum Ivan Kapustyanskiy, “there are not important events that could set the trend for ruble. “Essentially, all that remains is the opposition of cartels OPEC+ and US slate companies, and the overbalance, likely is still on cartel’s side, considering previous statistics on reserves of raw oil and oil products of USA. Thus, since the beginning of the month we observe a steady trend of lowering of reserves”.
Moreover, he thinks that in “ the mid-term perspective ruble will be supported by conservative policy of Central Bank of RF on lowering of key interest rate and analogous one from the Fed of USA, but in their case concerns are growing now, that regulator will not be able to hold current rates of growth of interest rate”. He forecasts: “We expect that in the near perspective oil of the Brent brand will remain in the range of 48-57 USD/barrel. At the same time currency tandem usd.rub will continue consolidating in range fo 55-60, and currency rate rub/kzt in the range of 5400-5632”.
At the same time, Chekai is convinced that movement of tenge now is largely dependent on policy of the National bank of Kazakhstan. Thus, he forecasts “weakening of down to 330 tenge/USD following ruble” which besides falling of oil prices has other problems.
As for ruble, in his opinion, “investors understand that the window for carry trade will sooner or later close and foreign investors might start to drastically fixate their profits, having created an opposite effect for ruble. How drastically this will happen, will depend on trajectory of movement of rate of rates of CB, but there is high chance we will see weakening of ruble in the second half of this year”.
