Alexander Khurshudov: the decline in oil prices will continue at least until spring
Last year my forecast for 2018 was that the Brent would slowly grow in the interval of $62-81. It worked well throughout the year, the quotes grew within this interval; only at the end of September they went up, and at the end of November - down (Fig. 1). However, in December the three-year up-trend was broken, and the sharp decline continued.
I didn’t say that was impossible. I called a new financial crisis the only reason for a decline, the probability of which I estimated at 10%. It seems that this is what has happened.
A slow decline in stock markets began in last January. First in China, followed by Italy in May, with the other EU countries and Canada in August. It seemed that only the US market would continue its 9-year growth, but it also ended in October. So, the atmosphere at stock market is now close to panic.
Besides, a speculative motive is clearly visible in the movement of oil quotes (see Fig. 1). At the end of September, the bears intentionally pushed Brent quotes up to $ 86.7 per barrel to start selling at higher prices. The subsequent decline of 41% was also too sharp to be considered natural. I am convinced that this was done intentionally by several leading Western banks, which, of course, used both weak activity of OPEC + and falling stock markets as informational support.
The experience of the last 20 years shows that large speculations of the bears in the oil market end in 6-8 months. A further short game is dangerous for speculators, because it may lead to major losses. Their finances, however large, are still limited, and when prices fall, demand and consumption of oil increase. Therefore, I expect the speculation to finish by this June. However, softer options are also possible (Fig. 2).
The thing is, not all stock markets broke the up-trend on the monthly charts. Having lost 15-20%, they bounced back from its lower limit and can immediately grow in theory. This is highly doubtful, because with the bold unpredictability of the American president fears at stock exchange will grow. However, some commentators are expecting a recession in the United States and other Western countries not this year, but next year. With this scenario I (see Figure 2), which I think improbable, the fall in oil prices will continue until March-April, it will stop at $45, and then there will be a gradual reversal of the trend. The year will end at $65.
Option II seems more likely, which means the decline in prices will reach $36 in May, in June-July the price will start to grow and reach approximately $53 by December. Finally, if the stock markets go into a tailspin and generally lose 25-30%, we can see option III, with the minimum Brent price at $25-27 reaching $40 by the end of the year.
It is clear that anticipating major shocks to the global economics, more rigorous forecasts will be utopian. Oil companies will have to closely monitor the situation and maneuver accordingly. I should note here that Russian and Arabian companies are better prepared for the upcoming storm. They are strong financially, they can find considerable capabilities in the already developed fields, while the perspectives of the Western companies in shale formations and deep offshore will be worse. In conclusion, let me remind you that no crisis lasts forever, and the one who overcomes it becomes stronger.