THE BATTLE BEGINS

The danger is not over yet. The risk of war is still great. What is more, in spite of all the expectations, only local clashes have occurred up till now, but a big battle lies ahead. This is how the last report of the International Energy Agency (IEA) describes the latest events on the oil market. According to the Agency's forecasts for May, the demand for oil in 2015 will be 93.6m barrels per day, which implies a growth of 1.1m barrels per day above the figure for 2014. Moreover world supplies of oil in April were 95.7m barrels per day, but in April OPEC increased oil supplies by 160,000 barrels per day to 31.21m barrels per day, a record level since September 2012. Oil supplies have grown owing to increased output in Saudi Arabia, Iraq and Iran.

The Agency's experts note that OPEC's decision not to cut quotas in November 2014, in spite of the drop in oil prices, was partially justified, since in May the daily production of shale oil in the USA is to fall by 80,000 barrels. But, on the other hand, the traditional oil producers who are not cartel members are continuing to boost oil production, with output due to increase from 200,000 to 830,000 barrels per day in 2015. Russia, Brazil, China, Malaysia and Vietnam provide the mainstay of this production moreover.

The "Wall Street Journal" quoted IEA experts as saying that it had been premature to think that OPEC had won the battle for its share of the market and that the battle had most likely only just started. In these circumstances, OPEC is trying to persuade a number or countries to take its side. According to a Bloomberg agency report, last week members of the cartel had a meeting with representatives from Russia, Brazil, Mexico and Azerbaijan. But the sides were unable to a agree on jointly cutting oil output.

In the view of Azerbaijan's Industry and Energy Minister Natiq Aliyev, at the present time there are no countries that would agree to cut oil output even to make oil prices rise. "Certain talks are ongoing, but it is not very clear to me at the moment what they are really about. I don't know of any countries that would be prepared to cut oil production," N. Aliyev told R+. At the same time, he noted that oil output in Azerbaijan is not on such a high level that it affects world oil prices.

As the major oil producer outside OPEC, Russia is completely satisfied with the current oil prices of 65-57 dollars per barrel. Commenting on the meeting with the representatives of OPEC, Deputy Energy Minister Kirill Molodtsov stated that the current price is in line with the forecasts made by Russian officials.

"Look at the forecasts that we made earlier. In this sense, you will understand that we are within the parameters that we predicted," Molodtsov said. Russian Energy Minister Alexander Novak has expressed the opinion that oil would be 65-70 dollars per barrel by the end of the year, but a price of 60 dollars per barrel suited the Russian oil companies.

So, no cardinal steps towards cutting oil production should be expected at OPEC's regular session in Vienna on 5 June, something that the cartel's representatives confirm. According to Kuwait's Oil Minister Ali al-Omair, at the present time the OPEC countries are more united in the view that the current oil production quotas need to be retained than they were at the November session, which can be explained by the rise in oil prices.

He said that now the main issue was whether oil prices would stabilise, since volatility is just as unpleasant for the energy producers as it is for the energy consumers. He also appealed to the countries that are not members of OPEC to share the responsibility with the cartel for maintaining stable oil supplies and oil prices.

OPEC itself is predicting a further growth in world oil demand. In its May report, the organisation's outlook for demand rose to 92.5 barrels per day, which is 1.18 million barrels more than in 2014. Oil supplies by the countries outside of the organisation, will be 57.16m barrels per day in 2015, which is 0.68m higher than last year. At the same time, OPEC has lowered its forecast for oil output in the USA by 40,000 barrels per day to 13.56m barrels per day. The demand for the OPEC countries' oil is expected to be 29.3m barrels per day compared with 29m barrels per day a year ago.

But more interesting events may occur a month after the cartel's session. On 30 June the talks on Iran's nuclear programme are due to wind up. In keeping with the intentions of the "six" and Iran, by that time a final agreement envisaging the lifting of sanctions on Iran, should be concluded.

This step will clear the way for Iranian oil on world markets. In a short period Tehran will be able to double oil exports from its current level of 1.3m barrels per day. Thus, Iranian Oil Minister Bijan Namdar Zangeneh has appealed to the oil-producing countries to open up the path for Iranian oil to return to the world market. He said that all the oil exporters should take into account the prospects for Iran's return.

Many experts are predicting a steep drop in oil quotas when large quantities of Iranian oil come back on the market. But it must be taken into account that Iran remains a member of OPEC, and all the countries in the cartel are trying to adhere to the agreed quotas. So, logically, after the sanctions are lifted Iranian oil will replace the oil of other cartel members on the market, which will not lead to additional supplies and cause the market to collapse. But to what extent are the other parties in the cartel, primarily Saudi Arabia, willing to give up their share?

The relations between the two OPEC members are not all that rosy against the backdrop of the events in Yemen. On the one hand, Saudi Arabia is resolved to go on increasing oil production, in spite of the fact that it reached 10.3m barrels per day in April, a record high in its history.

Quoting an unidentified source in Riyadh, the "Financial Times" publication reported that Saudi Arabia believes that its strategy of "squeezing out" competitors from the market, like American producers of more expensive petroleum products, is a successful one and is preparing to strengthen its foothold as the dominant force on global oil markets.

"There can be no doubt that the fall in oil prices registered over the last few months was caused by the draining away of investments from costly oil projects, including American companies' oil shales' projects, oil extraction by deep-water drilling and the extraction of crude oil," the publication quotes the official. 

According to the publication's source, Saudi Arabia intends to go on with the policy of boosting output, in spite of competition from other oil-producing countries both inside OPEC as well as outside the cartel and regardless of the increasing popularity of alternative sources of energy.

At the same time, "The Wall Street Journal" has circulated excerpts from the draft strategy being drawn up by OPEC, which may become a nightmare for the oil producers. According to the information in this newspaper, an optimistic forecast would be that in 2025 the price of a barrel of oil would only reach 76 dollars. A pessimistic forecast is that a barrel of oil will cost 40 dollars in general.

 The report also contains recommendations to the OPEC countries to return to a strict system of oil production quotas. These have de facto been abolished because the authorities in a number of the cartel's member-countries have been ignoring  quotas since they were dissatisfied with the restrictions preventing them from attracting investments into the petroleum sector. If OPEC is able to maintain strict discipline in its ranks, it will boost its influence on the oil market, "The Wall Street Journal" which is familiar with the source's report, explained. 

But in OPEC itself they immediately rejected this publication after noting that the "Wall Street Journal's" conclusions are unfounded. "There are not only inaccuracies in the material, but many of the data cited are not mentioned in any document currently being drawn up by the OPEC Secretariat together with the member countries," they stressed at the organisation.

In the present circumstances there are no preconditions for such pessimistic forecasts relating to oil prices, if, naturally, geopolitical factors are not taken into account. In the main, the economies in Europe and the USA are showing a steady, albeit slight, growth, which should ensure increased consumption of energy resources.

The oil companies' forecasts by no means envisage such a pessimistic scenario. The CEO of the Italian ENI oil and gas concern, Claudio Descalzi, has stated that oil prices will already reach 70 dollars per barrel in 2016 and 90 dollars per barrel in 2018. "We confirm our forecast, according to which prices will be 70-85 dollars per barrel for four years, right up to 90 dollars per barrel, because there are fundamental reasons for that, even without the intervention of OPEC," Descalzi noted.

Thus, the somewhat unexpected, but reliable trend for oil prices to rise may continue, at least until June. The "black gold" can expect two shake-ups in the first month of summer, namely the OPEC session at the beginning of June and the agreement on Iran's nuclear programme at the end of the month. But the market appears to be ready for both events. No matter what happens there, in these periods the market will be a feverish one, if only because the traders wish to earn more money. The inter-relations within OPEC, in particular between Saudi Arabia and Iran, will primarily determine the long-term pros-pects.