Economy 02-11-2018

"A powerful 'rally' of oil will strongly affect the US economy"

The containment of production is followed by an oil race. The main question is why the US increases its oil production volumes without having the opportunity to win exports, the experts ask, consulted by the Russian newspaper Expert.

Increase production

Still in August, the US ranked first in the world in terms of production, with an average of 11.3 million barrels per day, the US Energy Information Administration reported .

Meanwhile, the latest data from the Central Office of the fuel and energy industry on oil production in Russia suggest that in October it grew by 0.5%, to 1,557 million tons, that is, 11.4 million barrels per day.

Saudi Arabia claims to be approaching the figure of 11 million barrels per day. However, if necessary, it will increase production to 12 million barrels, said Saudi energy minister Khalid Falih.

The extraction grows due to the decision of the OPEC + countries, motivated by a sharp drop in production in countries such as Venezuela and Mexico. In addition, harsh sanctions against Iran, whose purpose is to reduce Iranian oil exports to zero, will enter into force in November.

Saudi Arabia and Russia pledged to extract more oil to compensate for the reduction in Venezuela and avoid any lack of supplies because of US sanctions against Iran.

The forecast of oil prices under the conditions of an active increase in production is negative, Expert Plus senior analyst Maria Sálnikova said , quoted by the newspaper.

"Let's see if the US stops, because its oil market already has an excess, otherwise we will see the Brent barrel at a price of $ 70. In November, there will be a drop in oil prices," he predicted.

The United States economy under threat?

The US is the only oil superpower in the world, which also imports oil from abroad. Only in September and only from Venezuela, the United States received some 600,000 barrels per day, the maximum of the year, reported Reuters.

Thus, the growth of production in the US is accompanied by an increase in imports. Meanwhile, the most important sales market for the US is Asia, but in October, as part of the trade war, China stopped buying US oil.

Why then does the United States increase its production volumes without having the opportunity to earn money on exports?

The higher the price of oil, the lower the growth rate of the US economy, which needs cheap fuel, explained Alexéi Antónov, an analyst at Alor Broker. It was Trump who called on OPEC countries, as well as Russia, to increase production volumes by two million barrels per day as a result of active growth, he added.

Despite the fact that since the beginning of October, the barrel has lost almost 10 dollars in price, it is likely that this fall will recover in November, since on day 4 the anti-Iran sanctions will come into force. The expert predicted that in November, the world market will lose two million barrels per day, since Saudi Arabia and Russia will not be able to compensate these volumes, opined Antónov.

"As a result, we are likely to see a long and powerful oil rally, which can strongly affect the growth rate of the US economy." Therefore, the increase in US production is only a measure to protect the internal market, which will not have any serious impact on the world market, "concluded the analyst.

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