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Page added on March 2, 2016
Russia Thinks It Has Solved the Oil-Price Crisis
But it may just be more wishful thinking
The world’s major oil exporting economies have been putting together an agreement to freeze oil production levels, and Russia’s energy minister is optimistic that it will be effective in finally stopping the slide in oil prices that has brought the price of oil down roughly 75% since the summer of 2014.
That’s according to a report in the Wall Street Journal,which states that oil exporters have gotten countries which produce 73% of the world’s oil to agree to not increase production from today’s historic highs. According to the report, Russia’s Energy Minister Alexander Novak would be “effective” even without the participation of Iran and Iraq.
The news seemed to buoy the oil market, with Brent crude prices rising to a two-month high. But there’s plenty of reason to doubt that the action will bring any sort of lasting rally to the market. First, global production may still continue to rise, with the lifting of economic sanctions against Iran allowing oil producers there too soon access the market. In addition, this agreement is still tentative, and only requires participants to keep production at current levels, which are at all-time highs in the cases of Russia and the United Arab Emirates.
And finally, there remain huge stockpiles of unused oil in the market today. “We may get to the end of the year, and even though supply and demand are in balance, the market shrugs and says ‘So what?’ because it’s waiting for proof of inventory draw-downs,” Mike Wittner, head of oil markets at Societe Generale told Bloomberg. “Moving from stock-builds to balance might not be enough.”
Indeed, the International Energy Agency estimates that inventories that have been built up over the past couple years won’t be cleared until 2021. And that means we could see many more years of below-average oil prices, no matter what the Russians say.
11 Comments on "Russia Thinks It Has Solved the Oil-Price Crisis"
markisha on Wed, 2nd Mar 2016 11:54 pm
agree to not increase production from today’s historic highs.
Hahahha they wish they could.
twocats on Thu, 3rd Mar 2016 1:45 am
This little Russian freeze-game has increased the price of oil by about $7 dollars a barrel. That’s like $2.1 billion a month more in value for Russia’s oil? Not a bad little con.
Truth Has A Liberal Bias on Thu, 3rd Mar 2016 2:41 am
“Indeed, the International Energy Agency estimates that inventories that have been built up over the past couple years won’t be cleared until 2021.”
The link provided to that statement makes no such claim. Retards.
rockman on Thu, 3rd Mar 2016 6:20 am
“This little Russian freeze-game has increased the price of oil by about $7 dollars a barrel.” Not necessarily: the bid on some oil futures contracts might have increased by $7 but Russia doesn’t sell its oil based on futures contracts. It sells oil based on both short and long term contracts with the refineries. And they don’t make those figures public.
And back to the basics: buyers (the refineries) don’t pay based upon what futures buyers are speculating the price of new futures contracts will be in the next 30 days. They pay what they can project for their ability to sell their refined products for an acceptable profit margin.
Tanada on Thu, 3rd Mar 2016 6:48 am
ROCKMAN Wrote [And back to the basics: buyers (the refineries) don’t pay based upon what futures buyers are speculating the price of new futures contracts will be in the next 30 days. They pay what they can project for their ability to sell their refined products for an acceptable profit margin.]
Actually I believe being in the business of making the most profit they can get away with the refiners pay the very least they can get away with while selling their product for just as much as they can.In most countries that means they can only make a small percentage of profit before they are accused of ‘gouging’ otherwise I beieve we would still be paying nearly as much for fuel today as we were in late 2014 even thought the crude price fell like a boulder down hill to its current level.
JuanP on Thu, 3rd Mar 2016 8:41 am
The title is ridiculous and the whole article is a Western MSM pile of dung. A “journo” quoting another “journo” misquoting the Russian government out of context as usual, and then spinning their own BS exceptionalist delusions. What a load of crap!
As far as the oil poroduction agreement, this is not really news. A bunch of countries that are all producing flat out agree to not increase production, which they can’t! Iran and Iraq are not part of it, and they are the only probable source of increased production this year.
Libya could in theory increase production, too, if they ever recover from the damage inflicted by
The brutal imposition of Western democracy, freedom, and values on the country. We were just spreading love and peace guys, not trying to steal the oil. I swear! They just were not ready for our freedoms there yet. So, this deal is much ado about nothing!
Kenz300 on Thu, 3rd Mar 2016 9:16 am
Electric cars, bikes and mass transit are the future…..
fossil fuel ICE cars are the past…………..
Think teen agers vs your grand father………………….
cell phones vs land lines…….
rockman on Thu, 3rd Mar 2016 9:24 am
T – Actually the refineries are currently “gouging” the public but they ate too f*cking ignorant to know it. LOL. As a general rule the lower the price of oil the higher the refinery profit margins. More specifically in 2013-14 when oil prices were spiking Gulf Coast refinery margins were around $8-9 per bbl. The estimate for 2015 is $12.50/bbl. That’s about a 47% increase in profitability in just a year or so. XOM refining/marketing is not the XOM exploration company. They really are two separate companies owned by the same shareholders. And the XOM refineries don’t give a sh*t about the other company’s profits: they are judged/rewarded strictly on their own results. Results that are looking fantastic today.
https://www.google.com/search?q=us+refinery+profit+margins+history&biw=1365&bih=934&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiZgMTt46TLAhVImYMKHVHxBh8Q_AUIBygC#imgrc=sNLJBlM30rX5VM%3A
But that was in 2015 when the average yearly oil price was $44.39/bbl according to the EIA. But the average price for Jan 2016 was $32/bbl. Wanna guess how much higher refinery margins are now that oil prices are 27% lower today than the 2015 average?
In general the public doesn’t understand sh*t about how fuel prices are determined and where the profits really go. Just because gasoline prices have decreased they think they are getting a better deal from the markup standpoint. After all they see the fuel marketing companies with stations on every other corner as the bad guys that were taking advantage of them when oil prices were high. They haven’t a clue that their evil ExxonMobil gas station is raking in big profits off of them like they haven’t for many years. I’m sure they yell “Screw you” as they pass an XOM station feeling so satisfied that they are f*cking over Big Oil. LOL.
twocats on Thu, 3rd Mar 2016 11:15 am
Rockman – this whole argument that the price of oil doesn’t have anything to do with the price of oil – we’ve heard it many times, and your specific argument makes sense but its getting old and annoying.
Doesn’t it also make sense that on Any Given Day there are contracts being written up for oil deliveries for this thing we call The Future, and doesn’t the price of oil have anything to do with the price of oil when discussing a future delivery? How in the fuck else are people going to decide how much oil is worth in any given contract if not based at least partially on the price of oil.
And doesn’t Russia refine Any of It’s Own Oil, and thus downstream also get to take advantage of the price of oil?
I know that when I purchased bulk diesel (maybe about 14,000 gallons a month) the price changed daily and was step-for-step with this “futures contract price” you keep saying Means Nothing To No One Everywhere on the Planet except some douches on Wall Street. Well, I’m calling bullshit.
shortonoil on Thu, 3rd Mar 2016 11:20 am
“As far as the oil poroduction agreement, this is not really news. A bunch of countries that are all producing flat out agree to not increase production, which they can’t! Iran and Iraq are not part of it, and they are the only probable source of increased production this year.”
US production went down last week, and inventories hit a new weekly high, but Nigeria, another country that is producing flat out, also said that they would be willing to join an agreement with Russia not to increase production?? The price jumped a $1. What a dog, and pony show. The simple fact that oil can no longer power enough economy to generate enough demand to consume all that is produced has not yet sunk in to the algos doing the buying. The MBAs trying to model this must be by now pulling out every last hair. Keep an eye out for bald headed energy analysts.
makati1 on Thu, 3rd Mar 2016 5:56 pm
Henry Ford knew that is he didn’t pay his workers enough so that they could afford to buy his products, he was dead in the water. Oil can go to $2* a barrel, but if the consumer can only afford $1, the producer will be out of business. Oil is NOT a necessity of life.
*Ignoring the cost of recovery which sets the bar much higher.