This Week's Focus 02 of March to 06 of March 2015

This Week's Focus 02 of March to 06 of March 2015


What's behind oil prices?
In the next chart you can see the trends of oil production and prices has been taking US Clearly it shows that when prices have suffered significant declines, many farmers have been forced to reduce production or close plants and businesses. This data would not be very different if we extrapolate to the rest of the world.

But who are the main world producers of oil? And the main consumers?
On the production side, Saudi Arabia supplies about 15% of world production, followed by the US and Russia with 12%. China, Iran, UAE, Iraq and Mexico are around 5%. Relating to consumption, 60 M. barrels a day between US and Asia Pacific are distributed, while 14 million are directed to Europe and other countries complete the 90 total M.

What were the countries most affected by declines in oil prices?
They have clearly been highly dependent on oil exports, as Russia, Venezuela, Iraq and Saudi Arabia countries. However, the latter has much more scope and ability to reduce costs and remain profitable, mainly due to the lower costs of extraction. Other countries have a higher and excessive dependence on oil exports marginal cost of production.

Moreover, countries benefit most have been importing because they see as the trade balance recorded a favorable balance. In the case of economies such as Spanish, Japanese or Germany itself. Also of note, a significant portion of this decline has been offset by the rise of the dollar. Since early 2014, the price of crude has fallen by -48% while exchange rate has appreciated about +18%.

It has translated to the real economy?
The difference should remain at 30% (48% -18%), as the positive income should pick the real economy, its expansion and leverage effect. This should lead to increases in household income and thus stimulating consumption. Also, in lower costs for most companies, behaving higher levels of business investment and improved margins and profits.

However, price decreases in oil did not result in the price of fuel. According to the National Statistics Institute (INE), the average price of a liter of gasoline in January 2014 was 1.39 €, while in December of the same year was 1.20 €. Therefore, a decrease of -15% in the price of fuel that reflects only half of the real fall (Oil price - currency exchange).

Finally, we note the following graph oil production by OPEC and non-OPEC ranked by the marginal cost of production. Saudi Arabia, as mentioned previously, benefits from low marginal costs well below the rest and allow you to better resist price decreases in the market. Precisely because this has been the main driver of oil prices drag down to deficit withdrawals from other countries such as the USA, in the process of consolidation as a net exporter by Shale Oil (oil fracking).

Shale Oil extractions represent the segment with higher production costs, which in most cases is around $ 70 / barrel.

What can we expect oil prices?
Members of OPEC production has remained constant at around 30 M barrels / day, as countries like Venezuela should continue to produce purely for reasons of stability of the country and others like Saudi Arabia are not intended to lose market share. The overall average puts the marginal production cost of slightly above 40 USD, but these levels only 60% of global demand would be met. Therefore, we believe that oil prices should rise in price up to cover production costs requiring demand (90 million barrels / day) to about 70-72 USD.