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
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.