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Long-term review

Exchange Rates 11.12.2018 analysis

Many experts are concerned about the question: who will win the fight for leadership in the global black gold market, the United States or the cartel countries? Analysts find it difficult to answer, because the situation is constantly changing in favor of one participant, then another.

After the summit of the G-20 countries, it became known that Saudi Arabia did not yield to US pressure, announcing a reduction in production by OPEC. At the same time, having solved one issue, the kingdom may face another problem, the potential increase in oil production in America in the event of a rally in oil prices.

According to experts, despite the stabilization of prices last Friday, the black gold market retained only 2% of the initial increase of 5%, caused by the announcement of a decrease in cartel production by countries and independent oil producers by 1.2 million barrels per day for six months.

On Monday, December 10, the price rally stopped. The price of WTI oil dropped to $ 52 per barrel at the beginning of the Asian session, and the price of Brent crude oil strengthened to $ 62, although the increase was not able to overcome the 0.5% mark.

Experts are wondering whether the volume of restrictions imposed by OPEC + is sufficient to stabilize the global black gold market. At the same time, it is not known whether all participants in the transaction will comply with their quotas, how long they will need to normalize the situation on the market, and how this will affect oil prices. According to analysts, the reduction in oil production will be for a period unfavorable in terms of energy demand. Experts believe that the reason for this is the slowdown in economic growth in China.

The attention of market participants this week will be directed to the short-term forecast of the US Department of Energy for the Energy Market (STEO). Experts believe that it deserves special attention of the leading market players, given the consequences of a reduction in the production of cartel countries, as well as Canada, the largest supplier of oil to the United States. Recall, the country of the maple leaf plans to reduce the supply by 9% due to the weakening of the price of black gold.

Most analysts believe that in the event of demand prevailing oversupply by the end of the first quarter of 2019, global oil reserves will steadily decline. At the same time, one should not underestimate the activity of American producers of shale oil, experts warn. Growth in shale production in the United States may be substantial over the next 6-12 months, especially if oil prices increase.

According to John Kilduff, strategist of the New York hedge fund Again Capital, for the current year, the United States increased production by 2 million barrels while increasing oil prices by 30%. In the case of a 15% price increase, American shalers will add another million barrels to the current level of production, which will negate all the efforts of OPEC +. Experts believe that if over the next six months, the cost of WTI oil is in the range of $ 55- $ 60, it will suit most US companies.

Note that the United States is the world's largest oil producer, producing 11.7 million barrels per day compared with 11.1 million barrels per day, recovered by Saudi Arabia and 11.4 million by Russia. According to the US Department of Natural Resources, the volume of shale deposits in the country is impressive: it includes about 46.3 billion barrels of oil, 281 trillion cubic feet of natural gas and 20 billion barrels of gas condensate, which makes these deposits the largest source of oil and gas resources.

Analysts believe that in response to the decision of OPEC + to limit oil production, US President Donald Trump may find new levers of pressure on the cartel's countries. They believe that the American leader is capable of delivering an unexpected blow to the global black gold market. Last Thursday, December 6, the head of the White House signed a permit for drilling in the western part of the United States on an area of 9 million acres. There are rich oil deposits in this area, experts emphasize.

Performed by Larisa Kolesnikova,
Analytical expert
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