The price of oil remains above $ 65 with tensions rising in the middle East and the USA has increased its reserves and production. Radio Sputnik discussed the issue with James Williams, President of the London, Arkansas-based researcher of WTRG energy Economics.
Companion: can you comment on the recent fluctuations in fuel prices?
James Williams: the main factor of instability now is the geopolitics. Obviously, the concern about Syria is part of it, and not manufactured in Syria, but more participants: will US policy towards Iran, which slows down their exports? In fact, in Syria you have a lot of Iranian influence, and this is part of the Sunni-Shia conflict that we have seen in the past and the Arab-Persian concepts that have existed for centuries.
Companion: so you think we really can expect to perhaps see some sanctions against Iran?
James Williams: I think that the probability is increasing every day. Next month, if the President does not extend all of the sanctions, they will automatically go into place, and I expect it will happen.
Sputnik: how the market will react? What do you think will happen, what’s going on with futures?
James Williams: I think the market is a big part of geopolitical risk already priced in. Because next month we have the risk of sanctions against Iran, which would take Iranian oil to the market. And we also have elections in Venezuela, and if Maduro is elected, I think the likelihood of some internal conflict or a coup increases enormously.
Sputnik: what is your forecast for the short and medium term benchmark oil prices?
James Williams: point should continue to grow from approximately $4 to $5 less than Brent. They will move together, but growth stocks in the delivery point of Cushing is likely to increase the spread between these two prices. But in General I think the apartment prices to rise by $80 for Brent, something close to $75 for WTI.
Companion: the USA is actually increasing reserves; they also increase production. How will this affect the market and how long it will take before an increase in the production have a real impact on the price?
James Williams: manufactured in the USA, unlike almost all other oil-producing countries, it really is not determined by the state, private investor and they just respond to prices. And the reason for this is that the rights to develop mineral resources in the United States actually are mostly owned by individuals, not the country itself. It’s just typical capitalist market. If the price is high, more and more people are investing more and more production, and we’re going to continue to grow while prices remain close to what they now our products. The rate of production in the USA will probably increase by 1.2-1.5 million barrels per day every year. Nothing at night because we have no spare capacity — we need to attract more wells to get it.
Sputnik: when you have a situation where you increased prices, i.e. to increase capacity and production, and strives to bring the market down due to increased supply.
James Williams: of course, if OPEC and Russia, say, Saudi Arabia and Russia have decided not to proceed in the same way that they are kept in conditions that limit production to support prices. As it turns out now, it seems, they were talking about this in the long term together. And this is quite interesting, because I don’t expect that Russia will join OPEC. Russia was courted OPEC since its inception in the mid 60-ies and Russia is not going to be a member of OPEC, but I think it will be an Alliance and it can last longer than until the end of this year or even next year. I think we could be looking at 5-10 years.
Companion: OPEC with Russia controlling their prices, their production to send prices. How will this affect rates going forward other scenarios that we have in place and set against the backdrop of the conflict in Syria?
James Williams: until they are willing to sacrifice market share to maintain their prices can certainly support prices around its current level at least for five years — and get big profit because they get more from higher prices than they would from higher production. In the end, we’re talking about control 40% of the oil market and a much greater percentage of internationally traded oil. They can only control prices for as long as they want some market share in the US and to a lesser extent Canada.
Sputnik: Russia is currently in the so-called “cold war” and there actually may be increasing the risk of possible sanctions against Russia. Analysts already understand the possible consequences of sanctions on oil prices?
James Williams: I don’t think Russia, sanctions against Russia, the importance of all this only to oil prices. Sanctions on China have a greater risk, because he will have more influence on the economy and sanctions against China if it led to a recession in Asia, that would put large downward pressure on oil prices. The impact on Russia, I think, much less.