Oil prices recovered almost 4% yesterday, but the shock of the last week has not been archived. In those five trading days (four in the US, where Thanksgiving was celebrated on Thursday) Brent and West Texas, reference points for Europe and North America respectively, lost about 13%. Brent crude closed just above $70 a barrel on Friday evening, its lowest since May 2009, and West Texas at $66,15, a five-year low. Yesterday's return of the two benchmarks towards 73 and 70 dollars does not reassure any of the big "losers", ie the high-cost producers heavily dependent on crude oil exports.
OPEC LEAVES MARKET FREEDOM
The decision of OPEC, which left its production ceiling unchanged on Thursday in Vienna, was widely expected, however it opened the door to uncertainty, decreeing the victory of the market, at least for six months, assuming that the cartel (or rather , Saudi Arabia) confirm their intentions until the next summit. In reality, the uncertainty is not due to the meeting in Vienna, but to shale oil, the crude oil obtained in large quantities in the USA thanks to the recent techniques of horizontal drilling and hydraulic fracturing of rocky shale. In fact, it is precisely this new source of oil and gas, which has been undervalued for too long, which has triggered the price war.
THE BALLET OF COMMENTS
The OPEC meeting, on the other hand, triggered the race for interpretations: are the taps turned on to bring prices down again and force shale oil producers to close down too expensive activities? or there is some motivation welcome to Washington and therefore indirectly sponsored by the Obama Administration, which would put up with the undoubted discomfort of its crude oil companies in order to see Iran and Russia on the ropes, two countries subject to sanctions by the US and, not surprisingly, heavily dependent on oil revenues?
THE SAUDI LINE
Perhaps there is no single answer. However, it can be emphasized that in the face of Saudi minister Ali al-Naimi, there did not exist any brilliant alternatives to what had been the strategy of his predecessor Zaki Yamani in the eighties: to produce more, to maintain and, if possible, expand one's share of market. The cartel's decision, even if it emerged from talks involving the 12 countries of the Organization, is Naimi's decision. His strength is not only that he alone represents about a third of all OPEC production capacity. It arises above all from the fact that none of the "hawks", such as Iran, Venezuela or Algeria, had to put on the table in Vienna a share in the production cuts with which one could hope to stem the decline in prices. The price of the market support maneuver would have been paid entirely and only by Riyadh, which would have also suffered the insult of losing market shares and of rolling out a green carpet (in dollars) in front of the producers of shale crude oil.
NATIONS IN TROUBLES
More than the reasons for the OPEC decision, it is worth analyzing the repercussions and possible future scenarios. In fact, the collapse accused by prices until Friday is the worst ever seen since the 2008 financial crisis and could have an impact similar to the one that drove Mexico into bankruptcy in the second half of the 92s and favored the default that accelerated the dissolution of the Soviet Union. To say it is Daniel Yergin, who in 'XNUMX won the Pulitzer for his essay "The Prize: the Epic Quest for Oil, Money and Power". According to Yergin, it will be necessary to wait a couple of weeks to understand where the market will lead prices and where the discomforts and advantages of the new situation will accumulate. But as of now it can be seen that at least four major capitals are anxious.
The first is Moscow, for which crude represents 68% of exports and 50% of the federal budget. Russia has already seen a sharp drop in foreign exchange reserves and an equally sharp weakening of the ruble. The state budget would need crude oil at 101 dollars a barrel, even if President Vladimir Putin and Igor Sechin, number one of the big oil company Rosneft, agree in saying that they will not need to cut production even if prices drop below 60 dollars , a scenario that in any case they do not consider reliable, because, says Putin, as always, General Winter is coming to the rescue of Moscow, forcing consumers to buy more.
Another capital in difficulty is Tehran, which is extracting crude oil at the lowest rate in the last twenty years, following the sanctions imposed by the US and the EU to discourage Iran's nuclear ambitions. The country would need a barrel at 136 dollars, also to curb the long slide of its rial, and falls in Brent prices can only transform a prolonged crisis into a disastrous earthquake.
Abuja also sees the naira, the Nigerian currency, on a downward slope. Crude represents 90% of exports and 75% of state revenues and would balance Nigeria's budget only if it had prices around 120 dollars. The same figure would also be needed in Caracas, where President Maduro will have to cancel many measures of his predecessor Chavez. 95% of exports and 25% of gross domestic product come from oil. The situation in Venezuela is compromised and leads to new devaluations, towards a further increase in energy prices, towards a sharp cut in subsidies for citizens. Iraq, Algeria and Angola are also suffering from the situation, having a strong dependence on fuel exports. Among the producers, Mexico can resist better, which treasured the crisis of the nineties. At the time, crude oil exports accounted for up to 38% of the country's exports, up from only 13% last year. However, state revenues account for 32% of the sector and therefore the problems are not lacking.
THE IMPACT ON WESTERN PRODUCERS
The landscape is not perfect even for some producers in advanced countries, such as Canada and Norway. The former has consistent production from bituminous sands, a source that involves quite high costs, while the Norwegian Statoil has some wells with a high break-even point, perhaps such as to impose some production cuts.
Now, however, the accounts will have to be done above all by the American producers. In recent weeks, thanks to shale oil, the US has produced more than 9 million barrels a day and aims to reach 2015 mbd in 9,4, the maximum since 1972. The figures circulating, with authoritative sources such as the International Energy Agency and the US Department of Energy are not worrying: the best shale formations, such as Bakken, are making profits even if crude oil falls to $42 a barrel, and only 4% of production from this source needs of prices to 80 dollars to make profits.
However, the companies active in the sector have had to invest heavily and have contracted heavy debts. And the majors like Exxon Mobil and Chevron (but also big Europeans like Shell and BP) have equally critical situations, because huge sums have been invested in new wells and several of the new projects are blocked due to the sanctions imposed by the US against Russia to punish his interventions in Ukraine. It is no coincidence that in New York Exxon lost 4,2% on Friday, landing at $90,54, to then recover 2% yesterday and climb back to $92,35.
CONSUMER RELIEF
In essence, the real winners are the big importers. First of all, China, which is already accelerating the establishment of strategic reserves and which has a growing bargaining power with suppliers. Finally, the Europeans are also happy. As Morya Longo wrote on Sunday in the Sole 24 Ore, if the European Union imports less inflation (the imported one is "bad" inflation, the one desired to defeat deflation instead arises from the growth in consumption) it can think of adopting a more expansive policy. Meanwhile, businesses can set aside for the moment the fears of a high energy price, citizens too, while motorists can fill up at lower prices.
For the record, according to calculations by Nomisma Energia, yesterday the optimal price of petrol - calculated considering the average gross margin over the last 24 months - should have been in self-service pumps at 1,660 euros per litre, while the survey shows an average value of 1,692 euros, made up of 61% taxes (excise duties plus 22% VAT). For diesel, the optimal price would have been 1,576 euros, but at the pump the real average came to 1,604 euros (in this case, taxes account for 57% of the price).
