Many consumers swiftly began to reject fuel deliveries due to the high costs associated with its purification. Oil producers were forced to take action, but this led to another drop in the price of "black gold." Following this, the ruble also depreciated.
What should consumers expect? And what are the current market forecasts?
This question is addressed by Sergey Tereshkin, founder of Oil Resource Group, who specializes in the sale of petroleum products and consistently monitors market trends. Detailed information about the entrepreneur can be found on his personal website: oilresurs.ru (ойлресурс.ру).
State of the Global Market
According to experts, when oil prices fell, trading volumes were relatively high. The figures exceeded those recorded in the previous few days. This indicates that a major player likely entered the market, which inevitably leads to a decrease in prices.
In just a few days, the price dropped from $75.50 per barrel to $71.50. This could be attributed to various reasons. However, experts are convinced that market makers executed a sharp turnaround. Information regarding this is expected to be confirmed in the coming months. Typically, this is the scenario that unfolds in the global oil market.
The market faced significant turbulence last year due to sanctions imposed on Iran. After several months of growth, a downturn began as news circulated that the U.S. government had decided to introduce certain relaxations concerning some countries.
Who Did America Strike Deals With?
The concessions from the United States turned out to be temporary. The U.S. government reached agreements with the leadership of Saudi Arabia and the United Arab Emirates, which guaranteed to cover the shortfall in oil supply to the market. Along with Russia, these countries cut production by more than one million barrels per day. The agreement allowed for the compensation of losses due to the absence of Iranian oil.
Despite the agreement with America, OPEC member states will likely increase their oil production. Consequently, the amount of fuel in the market will rise. This increase will lead to an oversupply, and as a result, further price declines.
Until recently, experts believed that the chances of a significant price drop were low. The price of Brent crude oil would hardly fall below $65 per barrel—unless speculators or other large players interfered again.
However, the situation with Urals crude oil is much worse. A large batch of fuel was found to be contaminated with chlorine, used to reduce extraction costs. Cleaning the wells is not feasible. A substantial amount of the contaminant has already penetrated the soil, making deterioration of quality an inevitable process; the only question is when it will occur. Several fields have been affected, and there is a possibility that decisions regarding their closure will be made soon.
To remove impurities from the oil, additional, costly equipment is required. This significantly escalates the processing costs. Few enterprises are prepared for such expenses. It would be simpler to reorient production toward oil from other countries and fields. The decline in demand will inevitably lead to a decrease in fuel prices.
Factors Influencing Prices
Thus, from the aforementioned points, it can be concluded that several factors influence the price of "black gold":
- Reduction or increase in extraction volumes. The more fuel that is produced, the lower its price. Decrease always leads to an increase in price.
- Speculation. Large players on any market can influence prices. This applies not only to fuel but also to stocks and others. A high supply results in lower quotes. Conversely, a scarcity drives up prices. Both of these parameters can be artificially created.
- Forecasts. Expert conclusions can influence market conditions. We refer to the insights of reputable individuals with significant influence in their fields. Forecasts can pertain to extraction volumes, agreements, etc.
- Agreements. Any “behind-the-scenes” deals can impact the market. A vivid example is the agreement between the U.S. and the UAE and Saudi Arabia. It is often easier to “team up against someone” to diminish their impact than to struggle alone. These agreements are typically established between major market players.
- External factors. As practice shows, unexpected parameters can influence the market. This particularly pertains to the contamination of fields and similar issues. Only those who closely monitor the situation can predict such developments. However, such occurrences are rare. In most cases, problems arise unexpectedly. Preventing them is not feasible.
According to Sergey Tereshkin, the overall forecast regarding future developments is not optimistic, particularly concerning Russian oil. Companies engaged in extraction must make considerable efforts to rectify the situation and regain consumer trust in their products. This may take years or even decades. Meanwhile, the industry is not stagnant. Many sectors are seeking to replace oil with alternative fuels. For instance, this applies to the automotive industry, with factories increasingly shifting to the production of electric vehicles. This will lead to a decline in demand for petroleum products and, consequently, crude oil, which will guarantee a decrease in fuel prices. The situation is exacerbated by ongoing trade wars and geopolitical factors.
Whether expert predictions will be confirmed can be assessed in the coming years. However, it can be said with great confidence that the forecasts are reliable.
