Brent, geopolitical conflicts and European dependency

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Brent, geopolitical conflicts and European dependency

During the last few years we have witnessed geopolitical conflicts that oil prices. On April 22, EE. UU it ended with the exceptions to the Iranian embargo that allowed it to continue exporting to countries such as China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece. With this, oil peaked since November of last year the week of April 22-28.

Source: M-Tech

Brent futures rose almost 35% in the first four months of the year. Markets have been motivated by contradictory signals, supply adjustments under the OPEC pact, sanctions against Venezuela and Iran, uncertainty regarding production in Libya and compensation for these effects by United States production have marked the volatility of prices.

How is the world production of oil?

The following table shows the evolution of global crude supply in mbpd. We can observe that since 2012 world production has been increased mainly by OECD countries.

Source: own elaboration, data from Reuters

Within the OECD countries, the United States is the main contributor to this growth. Not surprisingly, since the increase is the result of fracking techniques, it has gone from producing 11.1 mbpd in 2012 to 17.88 in 2018.

Source: own elaboration, data from Reuters

The following graph shows the distribution of world crude production in thousands of barrels per day for the year 2017.

Source: own elaboration, data from BP stadistics.

In 2017, the United States positioned itself as the world’s largest oil producer, followed by Saudi Arabia, Russia and Iran.

How is the oil dependence in Europe?

During 2018, the dependence on crude oil by the EU was divided as follows according to the data of the Registry of imports and deliveries of oil in the EU.

Source: own elaboration, data from the European Commission, statistics on EU crude oil imports and crude oil supply cost.

The map shows that, during 2018, deliveries of oil from the European Union come mainly from Russia with a proportion greater than 25%, followed by Norway with 10.38%. Countries like Saudi Arabia represent 7.21%, placing it in fifth position. Saudi Arabia and its allies have exceeded compliance with cuts to avoid possible overstocking during the first quarter of the year. On the other hand, it is worth noting the position of the United States, which in just three years has managed to pass in 2015 from the twenty-ninth position with 0.25% to the ninth, 4.15%.

How is the European exposure to Iranian crude?

Iran have some of the world’s largest deposits of proven oil and natural gas reserves, ranking as the fourth and second largest oil and natural gas reserves in the world, respectively according to the EIA (U.S Energy Information Administration). Iran is also among the top 10 oil producers in the world and the top 5 producers of natural gas.

The following graph shows the Iranian crude production data according to Reuters in millions of bpd. It also marks the events that occurred during the previous period of sanctions where production fell to 2.6 mbpd, as well as the time when sanctions began in 2018.

Source: Reuters.

It is expected that after the sanction’s exemptions, this movement will withdraw from the market at least half a million barrels a day during the second semester of the year. We can see how since the first quarter of last year Iran’s production has fallen by more than 1 mbpd.

The following table and graph show the evolution of Iran’s crude oil imports by the European Union.

Source: own elaboration, data from the European Commission, statistics on EU crude oil imports and crude oil supply cost. The cif price includes the fob price (the price actually invoiced at the port of loading), the cost of transport,insurance and certain charges linked to crude oil transfer operations.

We can see how during the years of sanctions, the European Union stopped importing Iranian crude and these imports were reactivated with the aim of sanctions

How have the imports of US crude evolved in the EU?

In the following chart we can see the European imports of crude oil from the United States. They reflect everything commented above, the increase of the production of this country, the step to be an exporter of crude and the growing weight as a European supplier.

Source: own elaboration, data from the European Commission, statistics on EU crude oil imports and crude oil supply cost. The cif price includes the fob price (the price actually invoiced at the port of loading), the cost of transport,insurance and certain charges linked to crude oil transfer operations.

Forecast for global economic growth

To all these events we must add the growth prospects of the world economy. According to the latest WEO (IMF) report, a contraction in growth is projected for 2019 for 70% of the world economy, marked by considerable short-term uncertainty, especially as the growth rates of the advanced economies converge towards a modest long-term potential.

What will be the future of oil prices?

Will Saudi Arabia have enough power to convince its OPEC allies and thus maintain the upward price trend?

Will the United States continue to compensate for the decrease in production?

What will be the price that the United States pays for sanctions on Iran?

Will the price of Brent be dragged down by the decrease in demand given the forecast for global economic growth?

Marta Serrano | Energy Consultant

By | 2019-05-07T14:25:26+00:00 May 7th, 2019|Categories: Energy Policies, Featured, M·Blog, Oil, Spain|Tags: , , |0 Comments

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