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Crude Oil: Will Saudi Arabia And USA Damage Russian Economy?

13 June 06:39 AM

Crude oil is sometimes referred to as the “blood of the earth” or the “black gold”. All the economies around the globe feed off it. All of them can be divided into 2 confronting groups: exporters and importers. The former (Saudi Arabia, Russia, Canada, Iran, Iraq etc.) need higher oil prices in order to earn more money from exporting oil while the latter need lower oil prices to consume more oil for less money.

All the above-mentioned gives a lot of space for political intrigues, which may result in the collapse of an empire (The USSR disintegrated after a major oil price collapse in the 1980s), revolutions (Libya), clashes (Bolivia, Nigeria) and wars (Kuwait, Iraq). As a result, the sensitive market of oil futures starts reacting in the opposite way.

In May 2012, Western mass media started reporting about the USA and Saudi Arabia’s conspiracy aimed at bringing down oil prices and forcing Russia, Iran and other oil exporters to their knees.

Is it true or false? Is it some inside info or bluffing?

Who Offered To Lower Oil Prices And Why?

The OPEC is for cutting oil prices. On May 3^rd 2012, during the oil conference in Paris, the Secretary General of the OPEC said that the price around $110-130/b couldn’t be acceptable anymore because of its negative impact on the global demand and consumption as well as the global economy in general. He named $100/b as the perfect price for both the exporters and importers of crude oil.

Arguments. According to the Secretary General, the OPEC countries increased their production of crude oil by 0.3-0.4 barrels a day in April. Moreover, some non-OPEC countries (including Russia) increased their production as well. As a result, the global supply exceeded the global demand for the first time in many years (roughly by 0.9 million b/d, other sources report about 1.3-1.5 million b/d). Therefore, the global market of oil saw excessive supply.

Risks. In reality, not all the OPEC countries showed an increase in oil production in April-May. Moreover, the OPEC managed to boost its production mainly at the expense of Iraq, which had expanded its oil-production capacities. That is why $100/b is a breakeven point for some OPEC countries, including Iran, Algeria, Libya and… Iraq as well. However, Saudi Arabia, which is used to playing the OPEC’s first fiddle, insists on lowering the prices for the sake of the OPEC’s bright future.

Oil Prices Go Down

According to the Commodity Trading Department of Masterforex-V Academy, the pace of decline of May’s oil futures amazes.

Everything started in March. At Inter Continental Exchange, May’s Brent oil futures lost $1,59, thus closing at $124,12/b. At New York Mercantile Exchange, May’s WTI futures dropped $2,48 down to $105,61/b:

цены на нефть

The decline continued in May.

Since early May, June’s WTI futures contracts (NYMEX) have lost 16%, which is the biggest decline since December 2008.

Since early 2012, crude oil prices have lost 11%.

According to the Commodity Trading Department of Masterforex-V Academy, the mid-term trend in the global market of crude oil is still bearish due to a number of factors:

· record-high oil inventories

· negative news from the eurozone

· stronger US Dollar

Saudi Arabia added fuel to the fire. On May 22^nd, The Minister of Oil Al-Naimi reported about Saudi Arabia’s intension to increase the production of oil from 9.9 million b/d up to 12.5 million b/d in order to drop oil prices. Obviously, this statement had major consequences. Within the day, the price of Brent oil reached the local low at $123.20/b. The market was rather skeptical about Saudi Arabia’s plans. The country’s oil-production industry will have to run itself ragged in order to produce over 10 million b/d. That is why such threats only undermined Saudi Arabia’s image, thus resulting in the opposite reaction. On May 24^th, July’s futures at NYMEX gained $1.79/b, nearly hitting the top.

However, on May 30^th there was a sharp decline: at NYMEX, July’s futures dropped $2.94/b down, thus reaching the 7-month low at $ 87,82/b (-3.24%). July’s Brent futures at ICE declined by $3.21 down to $ 103,47/b (-3,01%), thus hitting touching the lowest level since October 2011.

Expert Opinion: Reasons Behind Oil Price Decline. Is There Some Conspiracy?

Did Saudi Arabians and Americans decide to punish their rivals? Such an opinion is widespread, especially if to consider the fact a major price decline may be devastating to some oil-exporting economies (Iran, Russia, Venezuela etc.), the national budgets of which have already been balanced with a glance at $100-120/b. Post-war Libya and Iraq may suffer as well. At the same, Saudi Arabia may survive a decline down to $80/b. That is why it has a lot of space for maneuver.

The scenario has the right to exist. However, it is more probable for the Middle East, where Saudi Arabia (the Sunnites) opposes Iran and Iraq (the Shiites). The latter do their best to destabilize the situation in Saudi Arabia and the allied states like Bahrain. In this aspect, Saudi Arabia’s efforts are explainable, especially if to take into account the fact that these efforts are backed by the USA.

That is why investors should be cautious when investing in crude oil.

Eurozone crisis. Some experts say that oil price dropped on negative news releases. Some of them came from Europe.

In particular, not so long ago, Egan-Jones Ratings Company cut Spain ’s rating for the 4^th time, form «ВВ-» down to «В», with a negative forecast. The next day, the ECB declined Spain ’s plan to solve Bankia SA (€19bn).

At the same time, Italy held a bond auction, which disappointed investors.

According to the latest survey, most Greeks want to revise the financial-support agreement with the EU. This means that Athens may seriously consider the possibility of leaving the eurozone if the lenders do not compromise.

Overall decline. Oil prices declined simultaneously with other markets. The macroeconomic stats disappointed investors in May.

US crude stocks kept growing, thus contributing to the price decline.

Stronger US Dollar. The strengthening of the US Dollar also pressed oil prices.

Obviously, the mentioned factors should be taken into account. However, investors should also keep in mind that the price decline has been going on for over 2 months.

What factor can prevent the US to initiate an oil price collapse?

According to Masterforex-V Academy, there are at least 2 factors:

1. Higher consumption of energy around the globe (mainly at the expense of China and India).

2. Speculation (from individual traders to oil giants such as Exxon Mobile etc.)

This means the oil giants just won’t let oil prices decline below a certain level.

Crude oil and stocks show positive correlation most of the time. The intraday trading volume in the market of crude oil has increased considerably:

Market Leader and Masterforex-V Academy would appreciate if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:

In your opinion, what are the reasons for the recent oil price decline?

You are free to discuss this article here: forum for traders and investors

Got a question? – Ask it here »

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Tips For Investors: Does Russia Have a Bright Future in the WTO?

It’s been almost 12 months since Russia joined the World Trade Organization. This means that we have got an opportunity to make first intermediary conclusions. Still, this is not a easy task since the results are rather controversial. On top of that, the Russian community is still divided over Russia’s decision to join the WTO.

Some of them consider July 10^th 2012 (the day when the State Duma approved Russia’s WTO membership) the day of shame and national tragedy, the proof of national helplessness. They urge the government to exit the WTO. Others think that Russia has finally got an opportunity to integrate into the global economy, which is definitely a huge benefit for the Russian economy.

Let’s have a closer look at the situation…

Publication date: 23 May 06:40 PM

Mitt Romney, a senator and the Republican Party's nominee for President of the United States in the 2012 election, seems to have made himself known once again. This all revolves around his famous statement that “Russia is America's 'number one geopolitical foe”.

Publication date: 21 May 04:11 PM

As the Internet is brimming with financial information, it is generally hard for a trader to focus on its continuous stream. Many get lost in the abundance of offered possibilities and often make mistakes. It is a paradox, though truth, that the greater amount of information provokes hasty actions.

Publication date: 21 May 01:59 AM

These days many traders show rather average results at forex market. According to statistical data, only 5% reach real success, thus gaining regular profit. How are these 5% different from others?

First of all, they have the skill of taking wise trading decisions, based not on emotions, but on thorough analysis of all nuances, as well as all technical and fundamental results for present and future perspective. They are also characterized by systems of effective money and risk management, skill of waiting or acting when such is required by trading system.

Publication date: 20 May 10:21 AM

Over the last few years, the word collocation “European crisis” has turned into a set expression. It’s been almost 5 years since it began. Europe seems to have suffered most of all form the global crisis. 2 years ago a new wave of crisis broke out, thereby turning into a severe debt and banking crisis in the EU and the eurozone.

Good news are scanty while bad news keep coming from Europe almost every day. Yet, the world cannot ignore it because Europe accounts for nearly 20% of the entire global economy. Even though everyone seems to get used to unexpected (sometimes shocking) and controversial news from the area, they are still worried about the destiny of the Old World? A complete downfall or a renaissance?

Publication date: 13 May 12:48 PM

The latest opinion polls conducted in the EU show that more and more European citizens show distrust in the EU and the eurozone. The biggest decline was seen in the EU’s 6 biggest countries. In particular, in Spain , the distrust increased up to 72%. For comparison sake, it used to be just 23% 5 years ago.

Publication date: 02 May 11:43 AM

The purpose of fighting is to win, as the well-known saying goes. At Forex market traders, no matter whether they want it or not, have to fight not only for profits, but also... between themselves. In order to succeed, one has to manage his emotions, resisting panic, act on the basis of competent full-scale analysis of current and perspective situations, know and understand own trading strategies, based on numerous technical and fundamental components.

Publication date: 26 April 09:49 AM

Today anyone may earn money at international currency market Forex, provided that a trader has the necessary knowledge and, what is more important, has good understanding it. As far as this financial market is the largest according to daily money turnover (several trillion dollars), as well as one of the most progressive ones (there regularly appear innovative technologies), opportunities of successful work at it are available even for people that do not possess a considerable capital.

Publication date: 18 April 10:22 AM

China is reporting about another epidemic of the so-called bird flu (also known as virus H7N9). It has already suspended the domestic poultry trade. Numerous markets are closed in Shanghai, Beijing and other big cities. Chinese bloggers keep posting shocking footage showing dead birds.

At the same time, top-ranking Chinese military officials put the blame on the USA. They say this is some kind of a secret biotechnological weapon developed and used by the Americans.

Russia takes urgent steps to prevent the epidemic from spreading over its territory. Russia’s chief medical officer urges people to abstain from visiting the neighboring Asian country. There are temporary limitations for those who arrive from China. Russia may eventually close the border with China until the situation stabilizes.

What is really happening in China? How dangerous is the current epidemic? Can the USA be involved?
Let’s try to answer these questions together…

Publication date: 17 April 07:08 AM

The USA seems to threatening Russia not only with a shale revolution but also with a shale war. The North-American shale boom seen in the region over the last few years, has been treated as the end of Russia’s oil and gas industry. Everything started from shale gas, which allowed the USA to turn from an NG importer into a net exporter of this energy carrier.

Yet, US officials do not conceal the fact that they are going to use this trump card to free Europe from the dependence on Russian energy carriers. Now American observers and analysts are discussing the gloomy prospects of Russia’s export of energy carriers caused mainly by the shale boom in the USA and worldwide.

What is really happening inside the US shale industry? Is Russia’s export of energy carriers to Europe doomed? Let’s have a closer look at the situation.

Publication date: 16 April 02:58 PM

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