It is as if the analysts are taking out vastly differing rabbits from one big hat as far as the predictions about the oil prices next year are concerned.
The Central Bank of Russia issued its updated macroeconomic forecasts on 9 September 2019 in which it does not rule out the oil prices falling to USD 25 per barrel in 2020 in risk scenario.
Natasha Turak, in an article for CNBC on 6 June 2019, forecast that oil prices could hit USD 100 per barrel next year in case of escalation in the Iran situation.
Vincent Lauerman, in an analysis for Oilprice on 20 May 2019 wrote that war with Iran could send the oil price to USD 250 per barrel.
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When the Aramco facilities in Khurais and Abqaiq were hit last week, cutting down the Saudi oil production by about half, the Brent oil prices jumped 19% to USD per 71.95 per barrel.
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The calculations of the Central Bank of Russia could be based on several drivers, an important one of which is that it is not in the interest of Russia for the oil prices to go too high.
Even though Russia is known for its supremacy in the global gas trade, about 80% of its hydrocarbon revenues come from oil.
The current priority of Russia is to maintain the stability in its economy rather than vie for expansion.
The state budget of Russia can ‘break-even’ if the oil is around USD 40 per barrel. In sharp contrast, the break-even point for the budget of some other major oil producers such as Saudi Arabia is closer to USD 80 per barrel.
The thinking in Kremlin is that it would be advantageous to sell the oil at prices under USD 60 to make it difficult for other producers to compete.
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The predictions for USD 100 or even USD 250 per barrel are based on either a very hot proxy war or a full-fledged war in the Middle East.
The higher estimate is linked to the possibility that in case of hostilities, Iran may try to disrupt the flow of oil out of the Gulf, using its assets in other countries.
According to the Oilprice and CNBC analyses, Iran could even attempt to disable the oil production facilities in some countries to reduce the overall availability of oil to the market.
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Even if the oil crosses the USD 100 barrier, the jump would be temporary.
Because of fracking the USA is potentially a top supplier of oil as long as the prices are above USD 60 per barrel. If the prices rise dramatically, the American supplies will bring them down in a few weeks.
The disappearance of the entire Iranian supplies would possibly just add another USD 10 to the barrel. This is mainly because: 1. the other suppliers are able to fill the gap; 2. the American supplies are huge; and 3. the overall growth in the demand for oil would be rather sluggish next year.
The main risk here is the disruption of other supplies from the Gulf region and a trailer of that was seen last week with attacks on Aramco facilities.
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The real risk of a major war in the Middle East has abated slightly with the departure of John Bolton, a hawk who saw the war as a solution to every problem.
Nevertheless, if the kind of attacks that took place last week at the Saudi oil facilities continue one way or the other, the war, of whatever scale, cannot be ruled out entirely. Trump has already offered security assistance to Saudi Arabia.
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Central Asia where three economies – Kazakhstan, Turkmenistan, and Uzbekistan – depend considerably on the hydrocarbon revenues needs to refine its risk scenarios.
Even though the budgetary calculations in Central Asia are based on individual considerations of each economy, the consensus is that oil prices less than USD 60 per barrel make it difficult to balance the books.
In case of extreme volatility in the oil futures, there is hardly anything Central Asia can do in the immediate term except for tightening the fiscal belt.
However, there is the need to speed up two ongoing processes: 1. Decrease the domestic consumption of oil by finding solutions in alternative energies; and 2. Broaden the base of the economy. /// nCa, 16 September 2019