PJSC Tatneft. Annual report 2017
A A
PJSC Tatneft. Annual report 2017

Global oil market

Global oil market

In 2017, demand on the world oil market exceeded supply. This was the result of both a steady growth in oil consumption and measures to limit production adopted by a group of exporting countries. The consequence of the change for the balance sheet was the rise in oil prices and their relative stability during the year. In 2018, the factors mentioned above remain in force, allowing to expect that the balance of the oil market will be maintained.

OIL MARKET STABILIZATION

According to the estimates of the International Energy Agency (IEA), in 2017, the global oil shortage averaged 0.46 million bbl/day (against an excess of 0.7 million bbl/day in 2016). At the end of the year, the shortage increased, and oil reserves in the OECD countries were already declining at a rate of about 1 million bbl/day.

This situation was a consequence of the actions of a group of oil-exporting countries, which at the end of 2016 decided to reduce production by 1.8 million bbl/day. The purpose of the agreement, one of the key participants in which was Russia, is to reduce oil reserves to an average value within five years. During 2017, the reserve excess was reduced from 340 to 74 million barrels partly due to an increase in the average OECD reserves in the preceding five years, against which the excess is determined. The aim of the agreement is expected to be reached in 2018, which may give its participants an opportunity to reconsider production benchmarks.

Overcoming the surplus in the physical market supported the oil prices and ensured their stability during the year. From January to the end of December 2017, spot prices for Brent oil rose by about USD 10/bbl, and the average annual price amounted to USD 54.20/bbl (against USD 43.4 in 2016). In comparison with 2016, the volatility of oil prices significantly decreased.

The acceleration of the Western economies was partly the result of a soft monetary policy. A low inflation rate allowed the financial authorities of the United States and the eurozone to maintain low-interest rates. This, in turn, provides favorable conditions for financial markets and reduces the risk of negative developments in the world economy in the short term.

Geopolitical factors, which were often ignored by the market when oil was in excess, in 2017 began to impact prices again. Interruptions in oil supplies from Kurdistan and political events in Saudi Arabia caused a noticeable reaction of the oil market at the end of 2017. Stability of the proposal again came to the fore in determining the market conditions.

OIL MARKET BALANCE IN 2013–2017 (MILLION BBL/DAY)
OECD OIL RESERVES (BILLION BBL)
Source: U.S. Energy Information Administration
GDP DYNAMICS OF KEY ECONOMIES IN 2013–2017 (%, YEAR ON YEAR)
Sources: Bureau of Economic Analysis, U.S. Department of Commerce; Eurostat; National Bureau of Statistics of China; Central Statistical Organization, India; Russian Federal State Statistics Service
BRENT OIL PRICES IN 2013−2018 (USD/BARREL)
Source: Energy Information Administration of the US Energy Ministry
DEMAND FOR OIL BY COUNTRY/REGION IN 2013−2017 AND THE CORRESPONDING EXPECTATIONS OF THE IEA BY 2040 (MN BARRELS/DAY)
Source: Energy Information Administration of the US Energy Ministry