A significant shift has happened at the world market of “black gold”. On 23 December the price of European mark Brent (North Sea) and American WTI (West Texas) equalized for the first time for 4 years. Since the start of shale revolution oil from American oilfields used to be cheaper than that recovered on European coast, and the gap sometimes reached up to twenty dollars per barrel. And now price parity is set. This has been informed by Deutsche Welle edition.
Why has there Been Difference in Price for a Long Time?
Most analysts agree that such dynamics is mostly connected with the decision to repeal a ban on export of crude oil, which used to be in force for 40 years. It was adopted on December 18 by the House of Representatives of American Congress. To all appearances, next year oil from the USA is going to well up the world market.
The abovementioned decision of the Congress has been a reaction to serious changes, experienced by the world oil market in the recent years. In due time a ban on export this energy product beyond the borders of the country was a reaction to oil crisis of 1973, when Arab countries – members of OPEC rapidly reduced recovery due to political concerns, which lead to growth of the world's prices. This has hit America particularly hard, for by that time it had already conceded the role of the largest center of oil recovery to the Middle East and was highly dependent on supply from this region.
This dependence was kept for the first decade of 21st century, which stipulated high price on oil from American oilfield, for they remained the only reliable source of this energy product to America. This one of the main reasons why price of WTI and other American brands in 2000s was higher, sometimes much higher, than of European Brent.
Shale Revolution Changed Everything
In a few years shale revolution, which started in 2010, has managed to bring to nothing dependence of the United States on import of petroleum. Owing to latest technologies the needs of US market have become fully covered by the country's own production. This has lead to the fact that European brand Brent started to cost more then Texas WTI. Because of sanctions, Europe stopped receiving oil from Iran, and many Middle East providers redirected a considerable part of their export from European market to rapidly developing China.
And now American “black gold” is rising in price against European again. Market participants suppose that its supply within the United States will drop due to permitted export. No doubt, this is good news for companies that recover shale oil and need high prices for cost efficiency of their business.
However, change of correlation between prices of WTI and Brent does not necessary mean the end of global fall in oil prices, which has lasted for one year and a half. Thus, experts of Goldman Sachs investment bank (the USA) believe that increase of quotations, observed these days on both sides the Atlantic, is only a short-term occurrence. In their latest forecast they insist that some time next year one barrel will cost twenty American dollars.
Many other analysts find such forecast extremely radical, although they agree that oil price will continue falling during the 1st half of 2016. However, then, according to them, quotations will go up again. “We expect that by the end of 2016 the price of Brent will reach 55 dollars per barrel. This is higher than now, but still lower than it used to be in these years,” said DW Joseph Auer, energy expert of Analytic Center in Deutsche Bank.
In his forecast Auer proceeds from the fact that “cartel will keep excess production of ‘black gold’ during 2016, and recovery in America will drop, but not as much as expected”, for many company that recover shale oil have proved that they can stand rather low quotations on their products.
In addition, the German expert is certain that “additional volume of Iran oil will lead to stabilization of low oil prices”. “If sanctions that ban supply to Europe have not been removed from this country, by the end of 2016 oil quotations would be five-ten dollars higher,” supposes Joseph Auer. However, unlike many market participants, the expert of DB Research doubts that America will start large-scale export of “black gold” after removal of a ban. He also pays attention to technical factor: there are little free tanker capacities at the market. However, economic aspect is much more important. By quality WTI is consistent with Brent. It could replace the latter, but the difference in price of North Sea and Texas brands has not been high enough lately to pay off rather expensive export supplies. Now, when quotations have equalized, this advantage is brought to nothing.
