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Oil prices will continue falling: Kazakh economist

26 august 2015, 21:06
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©REUTERS
©REUTERS

Oil prices will continue falling in the next 5-15 years, Tengrinews reports citing the Director of the Economic Research Department at the Eurasian Integration Institute Vladimir Telnov.

Starting from 2010 until 2014, oil prices were relatively stable and remained at around $110 per barrel. However, since last year's June oil prices fell sharply. Brent crude oil, used as international benchmark for most of the world's oil, reached it six-year low last week plunging down to $43 per barrel. 

Vladimir Telnov brought up some of the reasons explaining the situation in the oil market. One of them has to do with the United States that is now supplying to the market huge amounts of its oil that they had been keeping for decades.

At the same time, there is the 12-nation Organization of the Petroleum Exporting Countries that is now intending to cut its production, moreover it has recently declared that its it was ready to sell oil at $30.

The recent lifting of the Western sanctions imposed on Iran, another major oil producer that possesses the world's fourth-largest proved crude oil reserves, also affected the global market, which has already been oversupplid by some 800,000 barrels per day.

To put it simply, a surge in production of oil will bring prices further down.  

The situation unfolding in the oil market benefits oil importers, but, on the other hand, it has significantly hurt oil producers, including Kazakhstan, the region's second largest crude oil producer after Russia, which has recently switch to a free-floating exchange rate to contend the falling prices for its main exports.

According to Vladimir Telnov, prices for oil will continue slumping. “Oil prices will continue declining. Therefore, in the next 5 to 15 years oil prices are expected to be at their lowest. Besides, I would like to note that a number of experts even believe that the oil age is approaching its end. As you know, 80 percent of oil is used to produce fuel. Alternative renewable energy sources are being actively developed now. Our EXPO (to be held in Astana in 2017) also deals with renewable energy sources and is aimed at facilitating their development. In some five years, 10 percent of all the world’s engines are expected to run on such energy sources,” the Kazakh economist said.

“Recalling the time when oil price was below $30 and $20, we should bear in mind that back then, 10-20 years ago, the value of those $10-$20 was very different from their current value. Thus, we think that the new bottom price for oil is $40, it is just impossible for it to fall lower,” he said.

He illustrated his point of view by quoting of the economists who said that the Stone Age ended not because of the lack of stones. In fact, the same is true for oil, as the oil age may end not because there is no oil left, but because there was a need for a new system of production.

The Kazakhstani expert said he expected the oil to remain low in the coming years, since that dollar was closely tied to oil prices. “The current global financial system is aimed at strengthening the dollar. This is a very important matter for the system. Therefore, it will seek to keep oil prices low. This also explains the weakening of all the national currencies against the dollar. This is basically the logic of the existing system – to support the dollar,” Telnov concluded.

By Assel Satubaldina, editing by Tatyana Kuzmina


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