Has become relatively low oil prices in the new reality? Who tries to rein in Saudi Arabia? Did the Kremlin is a victim of its own oil illusions?

These are the questions we discussed with Richard Bellingham, a Professor at the College the Citadel in South Carolina, Michael frame Bernshtam, Professor of Economicand Yuri Yarim-Agayev, financial analyst, staff of the Hoover institution in California.

On Friday, oil prices on the new York Mercantile exchange has set another record. On their way down they fell below sixty dollars. The price of the so-called West Texas oil dropped to fifty-seven and a half dollars. This means that the price of oil dropped to five years. Moreover, the results of a long hard climb of oil prices collapsed to forty dollars per barrel during the financial crisis of 2008, were crossed in just five months. Since July of this year, oil prices dropped by more than forty percent. In the context of the concepts of financial markets this fall means a total surrender of optimists and a negligible probability of returning the rate to the previous level.

This wreck has caught many, including professionals.According to the press, with the new reality must be considered even some of the leading oil companies in the world. For example, they review development plans North costly and deep-water deposits, because in the new environment they have no incentive to produce expensive oil. Not yet ready to acknowledge the existence of what some analysts are already calling the new paradigm - a long period of low oil prices, but as they say my interlocutors, this kind of situation most likely.

That's how it was explained as a surprise to many strange, very sharp drop in oil prices and Professor Richard Ebeling from College the Citadel in South Carolina:

I don't think it's fall looks too strange in the context of the many predictions of analysts that the development of new drilling technologies to extract oil and gas from shale deposits, such deposits are actually around the world, in the end, will lead to a sharp increase in production and supply of oil and gas, primarily in North America. In my opinion, if we talk about the surprises, the unexpected was the promptness with which miners oil and gas has introduced new technologies and ensuring supplies of this raw material on the market. To this we must add the brutal global recession undermined the growth of the world economy, and hence demand for energy. These factors have led to falling oil prices. Of course, the intensity of cheaper oil for forty percent for five months - was unexpected, but given the objective tendency, this decline should not be very surprising.

Now these explanations really seem plausible, but only seven or eight years ago no less convincingly sounded forecasts that the hydrocarbon reserves can be exhausted within a few decades, the prices of energy resources will only go up. Why is the current forecasts are more trustworthy?

Indeed, for decades, a number of economists and analysts returned to life the idea that we have reached a limit beyond which increasing volumes of available and proven for the extraction of oil is negligible. As a consequence, the energy demand will greatly outstrip supply by all the unpleasant consequences. Oil prices are destined to rise. But if we look at what happened in reality, we will see that almost every decade has opened new giant oil fields, which allowed to significantly expand its production. This experience suggests that limit the growth of hydrocarbon production no, at least in the foreseeable future. It is not excluded that, say, five or ten years, new technologies will allow to detect the sources of oil and gas where it is today impossible to imagine.

- Does this mean that some governments, like, say, Russian, made a historical blunder, considering that the country's focus on oil and gas win by definition. And some companies and Russian and Chinese - made the biggest mistake by buying the rights to oil production at very high prices?

"Yes, now, knowing what happened, we can accept such an interpretation. It is, indeed, evidence that governments are often unable to make the right decision in the field of entrepreneurship. Of course, we can be a witnesses of short-term spikes in oil prices, if, say, Saudi Arabia and its allies OPEC decides to drastically reduce its production. But the macroeconomic situation is clearly not in favor of countries with high cost of oil. As I said, given the rapid technological progress and the slower growth of consumption, including through the use of energy-saving technologies, there is no reason to think that we have reached the lower limit of the falling prices of oil and now the oil prices will go up.

- What, in your opinion, in this situation, the likelihood that Moscow will be able, as they say in Russia, ease off oil needle?

- Given the structure of the control system, the level of corruption, political manipulation, this goal in the current environment looks unattainable. Very simple example. The Russian government has been ineffective Manager the most important for themselves industry - oil and gas. The lack of public investment in the sector and the lack of market competition among producers has led to the degradation of infrastructure and increase in the cost of Russian energy resources. It is hard to imagine that this situation will change. And it is very difficult to experience at least some optimism about the ability of the Russian authorities to create conditions for the spread of the economic model based on exports of natural resources, to a more balanced and diversified, " says Richard Ebeling.

Professor Bernstein, your version of the reasons of the collapse of oil prices?

- Most importantly, the biggest and most long-term is the shale revolution in the United States and in North America in General, " says Mikhail bernstam. America is practically not mined shale oil a few years ago, now produces 4 million barrels per day. Canada produces the Sands of two million barrels per day. This is the first. The second is that the process accelerated in the last few months, this strengthening of the dollar and, accordingly, the drop of oil. The third factor of Iraq. Because Iraq finally regained not only his pre-war production, but even increased and now produces 3.3 million barrels per day. The world oil market is oversaturated, the proposal is 94 million barrels per day, the demand - 93 million barrels per day. And in this situation the proposal, of course, exceeds the demand. And when it did, it began a dramatic drop in oil prices.

Yuri Yarim-Agaev, why did it collapse?

It is natural for the behavior of prices on the modern market of natural resources, " says Yuri yarim-Agaev. - The fact that the price of natural resources is determined by two components, one more long-term, which can be called economic component, and the second market component. The initial tendency is created by economic factors, mentioned Michael. When the market appears and the feeling that the offer exceeds the demand, there is a new trend, and due to the very fast and efficient market, which operates all of the new tools, the trend is sharply accelerated, and this is what we see now.

"But from this explanation we can conclude that the collapse in oil prices is largely the result of herd behavior of market players, and the price is accidentally dropped below, say, objective level. Or not at all to say about a certain objective level?

No, there is no concept of objective rates do not exist, the price is there in every moment of time, it is quite fluctuates around some mean values, determined by the economy, " says Yuri yarim-Agaev. "By the way, is the price, which now is, I looked at the chart for the last 50 years, which corresponds more or less the average price of oil. So it is on the long-term scale is not so low, prices fell much lower and the prices went up much higher. So it is wrong to say that today's price is determined by speculation. What I said is effective even speculative market mechanisms enabling a faster, much faster to find the rates and get off at prices that are more consistent with the new economic conditions. But in the end this situation and determines oil prices.

Professor Bernstein, from your point of view, how can anyone reasonably say what will be the price of oil in the foreseeable future, say within a month, a year, two years, three years?

- The fact that there have been tremendous changes in recent times, which, apparently, will also influence the future price of oil, and they still are, conditionally speaking, to the third factor, the third component of the geopolitical. And exactly what OPEC in fact, according to many observers, collapsed. In November, Saudi Arabia declined from the previous tactics of manipulation of oil supply on the world market to control the price. And this is due to the fact that Saudi Arabia wants politically to weaken Iran, which is highly dependent on the oil market, in some degree, to weaken Russia as its competitor. The fact that OPEC consistently produces about 30 million barrels a day when it was almost half of the world market, now the world market amounts to more than 90 million barrels a day, OPEC produces only one third. Significant influence is already on the global market it can't, Saudi Arabia refused to do so, and, accordingly, many believe that the entire era in which OPEC dominated on the world market, has ended. Moreover, now many have come to the conclusion that for the first time in 40 years since the 1973 embargo, the world oil market has recovered, the free market, and now the demand and supply, market mechanisms and trading mechanisms mentioned Yarim-Agaev, and political processes, and deep economic processes, and technological development of shale oil, this will define a free market for oil.

And this, from your point of view, means that the real long-term oil prices can be even lower than the current level?

- Now you can only talk about predictions. The forecasts do expert agencies such as the energy information Agency of the Ministry of energy of the United States, " said Michael Bernstein. - Forecasts make the largest banks, they have expertise. And their predictions now because of falling oil prices become obsolete much faster than they have time to publish. Less than a month ago, the energy information Agency of the United States assumed for 2015 that Brent, mark, oil will cost 68 dollars a barrel, now it is 64 already, and that West Texas oil, American crude oil, will be 63 USD per barrel, now it is about 57$. Bank of America assumes that in 2015 the world oil price will fluctuate around $ 50 per barrel.

The Professor, however, you leave the answer to the question. The question was relatively simple or not simple: it may be that the low price of oil is, sorry for the word, the new paradigm?

"Yes, of course. Conventionally, low oil price, we are talking about, is what will the future of the oil market in the conditions of free market. Now there is a boom in shale oil, now oil from the oil Sands, now begins the shale gas revolution in China. The price of production from such unconventional sources of oil very quickly drops, and now the cost of shale oil somewhere around 55 dollars per barrel on average, at least in the United States, are more expensive in Mexico and South America. We must be prepared for the fact that relatively cheap oil in terms of free markets ceteris paribus - that is what will happen in the future.

Professor Bernstein is not willing to say what the price might be worth coming months, year or two years. And you, Yuri yarim-Akaev, will undertake to predict?

"No, not undertake, and nobody can do. If I could predict the price of oil, I'd be the richest man in the world. It's just not able to do no one, including those banks mentioned Michael, some of which I worked. You can talk about some of the trends, and it is reasonable, but we cannot speak about any exact prices. I completely agree with Michael that the General trend due to increased supply and reduced demand, will help to ensure that the oil price will either fall, or at least to stay at current levels and is unlikely to grow.

- Do you dare to conclude that the oil price will be down for a long time?

-Forever impossible to say, but for a long time, dare, except that some of the moments due to geopolitical or other reasons may occur separate races, " says Yuri yarim-Agaev, but it will most likely short-term surges and the average price will be kept pretty low for quite a long time.

- That, as the Americans say, most likely good news for the American economy and for them the most, because gasoline prices in recent months has fallen by more than a quarter. It can be assumed, Professor Bernstein that the fall in oil prices will contribute to the growth of the American economy?

For most countries in the world, a low oil prices are extremely beneficial. The Bank estimates the approximate already showed that the drop in oil prices that occurred in recent months, i.e. from about 110 dollars per barrel to the current 60, for the world is equivalent to one trillion dollars of stimulus. In this situation, of course, America being a country of industrial, as a country process, very much wins as benefit all developing countries, and the less they developed, with the exception of Nigeria and others who depend on oil, the more they win. So for poor countries, for developing countries cheap oil is the most favorable phenomenon.

Yuri Yarim-Agaev, our interlocutor Mikhail bernstam just diplomatically, I think, did not mention Russia in a number of developing countries in the list next to Nigeria?

- The first thing I wanted to say that Russia is not in any way a factor in what happens to the oil price. The idea that oil prices artificially reduces the whole world to make bad Russia is a purely Russian paranoia. In addition, this is purely a Soviet belief that countries for political purposes much to change the oil prices. This is a complete misunderstanding of the workings of the free market, of which we now speak.

In this case, this question: what can be paid Russia for this misunderstanding?

-Retribution Russia will be great, because it is entirely put their whole economy is dependent on oil prices and gas, " says Yuri yarim-Agaev. Unlike America, the Russian gross national product this is a gigantic proportion. The decrease in the price of oil drastically reduces the gross national product, hence, the economy and the wealth of the country. This is the fee for the complete irresponsibility of Russian politics, which actually turned his country into a country of the player that actually plays on the price of oil on the stock exchange and the well-being of people living in this country, depends on where these rates are moving.

Professor Bernstein, as you are such an interpretation of the situation in which Russia is a player whose bid burnt?

Let's for fun let's compare two countries - Norway and Russia, neighboring countries, both are oil producers. What happens? For one and the other country decreases the world price for oil. How did they react? Norway immediately reduces the interest rate of the Central Bank to drop the price of oil did not affect the country's economic growth. Russia raises the stakes on the contrary, because Russia is no longer thinks about economic growth is already all over, Russia is simply afraid of the fall of its currency. Norway Vice versa is not afraid of the fall of its currency, because this will only increase the possibility of its engineering exports. Norway country technologically advanced, Russia is a backward country, it operates only on natural resources. Next: in Norway, the budget can be reduced without a deficit even when the price of oil is $ 40 per barrel. Russia, in order to reduce the budget deficit, we need the world price for oil 98 dollars per barrel. Such price is no such rates in the coming years will not be. Now Russia's Central Bank predicts the price of oil in the future $ 80 per barrel is from the realm of fantasy.

Now forgotten, but I remember that in the beginning of zero years, Vladimir Putin has set the official aim and the official goal of the country to become a leading energy, seriously, apparently believing that, as a leading energy supplier, Russia can live and thrive. Yuri yarim-Agaev, it was naive, honest error or something else?

I think it was naivety and delusion, or simply ignorance. For, as we have said, the Russian leadership consists of people of the Soviet mentality, which does not understand the principles of operation of the market, believes that oil prices can be characterized by some strong-willed, or by using a Central planning or political action, respectively, have not even tried, did not have some mechanism to try to estimate what might happen with oil prices, based on market conditions. I want to say one more thing, showing how primitive the Russian economy at the moment. She not only is ICT economy, but Russia possesses enormous technological potential in the sense of well-educated population, not only created an alternative sectors in the field of high technology, but even within the oil and gas sector, it failed to develop any of the modern methods that are required for exploration and development in new ways, for example, the same shale technology. Its in Russian oil companies in essence there are no oil, no gas. One of the reasons of the conflict with Ukraine was the fact that, when Ukraine was discovered shale gas, "Gazprom" immediately there came and said he offers it to develop. The problem was that with all the sympathy of Yanukovych to Gazprom, "Gazprom" there was no technology of shale gas development. Therefore, even the Pro-Russian Yanukovych instead of "Gazprom" signed contracts with British petroleum and Chevron on these developments, that Moscow was offended, although in this case her offense was not exactly what it is, because she just didn't know how to do it. The Russian situation is very simple, they live in the underdeveloped economy of the country with great potentials, but these potentials can develop up until the country's political and economic freedom.

Professor Bernstein, you brought the forecast of the Central Bank of Russia, awaiting the rise of the oil price up to eighty dollars per barrel, but just recently, President Putin promised the producers, the oil seems to be over one hundred and forty dollars?

-Very dangerous for the country, when the country's leadership, heads of economic policies are wrong and lose the idea of what happens in the real world, detached from reality. It just leads to wrong strategy, the wrong plans, incorrect smartyview budget. We must look at reality. But the reality is that now the expert Agency predicts that oil production in Russia will be reduced for the simple reason that Russia, like America, is a big country and have cheap oil, is the oil of the cost of production is very expensive. And in Russia, and in America the average oil production is, on average 50-55 per barrel. But in Russia, in the North of 75 dollars per barrel, there are places where 80 dollars per barrel. Cheap oil is the oil in Bashkiria, the oil in the South of Siberia. And this expensive oil will not be repaid and thus will decrease the production of oil, in addition to the burden on the budget and the reduction in real production.

Professor Bernstein, you say that the Russian authorities were divorced from reality. And she had to break away so that they didn't notice the looming threat of default. Recently the Danish investment Bank Saxo in the list of so-called scandalous forecasts for the number one predicts the Russian default in 2015. The list, of course, not entirely serious, but the arguments taken from life: the Bank points to 134 billion dollars, which is to be paid to the Russian company, plus a lot of other unsustainable in the new conditions for state obligations?

-Is it possible not in 2015, but then maybe that's why. It figures debts of Russian companies and banks in the West Bank, and this is the result of sanctions. As before Western banks all the time refinanced Russian debts and Russian companies and banks could service their debts, they are now above $ 30 billion must pay interest, they are not able to refinance debt, then they should still next year about 160 billion dollars to find and pay. In this situation, many large Russian companies, including Rosneft, appealed to the government of Russia with a request to help them with money from the stabilization Fund. The combination of sanctions and falling oil prices really creates for Russia a state of deep debt, where debt service is becoming problematic.

Yuri Yarim-Agaev, whether the Russian default?

The default is quite possible, and it has a very dramatic consequences for the Russian population. That is, I would say, double the crisis. Which will be connected on the one hand with the inability to pay the external debt, and on the other side with the complete depletion of the Russian budget and a sharp drop in economic output in the country. It's even worse than the default in some degree that may occur.

- However, now suggests that the American economy may be returned to good growth. Good growth of the American economy, the economic growth in the world demand and growth of Russia is coming back to life, apocalyptic predictions happily forgotten. Professor Bernstein, how likely is such an option?

-Now in the United States the growth of oil production ahead of possible economic growth of the United States. When all the projections in this situation, the United States will still rely primarily on domestic sources of oil, growth in the supply of oil on the world markets will not be less, but rather more than the growth in world demand, so expect favorable for Russia any trends.

Yuri Yarim-Agaev, there will be good luck to the Kremlin this time, as Vladimir Putin was lucky in the last decade?

- I think that will not happen. He was lucky once, lucky twice, because he got high oil prices and dividends post-Communist economy. But this lafa ends. It was pure luck, which largely provided him such a long reign, but this luck can't last forever.

Yuri Zhigalkin

13.12.2014

Source: Radio Liberty