The dollar was a contributing factor to oil’s crash between June and January as it rose 16 per cent against a basket of other currencies. However, the 60 per cent decline in crude from about $115 to $45 a barrel over the same period illustrates how crude was largely trading on its own fundamentals, as the US shale boom contributed to oversupply.
Last December Moscow took Europe by surprise with an announcement that South Stream, a 63 billion cubic metre (bcm) pipeline designed to bring Russian natural gas to southern Europe across the Black Sea would be scrapped and replaced with a pipeline of similar capacity that would cross Turkey and stop at its border with Greece.
Russian natural gas accounts for roughly a third of all foreign supplied natural gas coming into Europe. Russia’s biggest partner is Germany. In that state, Russia’s presence is on the upswing.
Global oil demand is set to rise by 1 million or even 1.5 million barrels per day (bpd) in 2015, according to a range of forecasters.
Russia has a five year window, at best, to successfully enter the global LNG markets and even that window is closing fast. That sentiment was the major takeaway from the recent Russian LNG Congress in Moscow.
Turkey's relationship with Russia is changing significantly. A domestic economic crisis, low energy prices and European energy diversification efforts have weakened Russia.
On December 1 2014, during his official visit to Turkey, Russian President Vladimir Putin announced the suspension of South Stream, blaming the EU for its “unconstructive” position. In fact, the realization of pipeline had become untenable as a result of various legal, political and financial issues, such as the EU’s Third Energy Package, the Ukraine crisis and the ensuing sanctions over companies involved in South Stream (Stroytransgaz and Gazprombank).
Russia is the main supplier of crude oil and natural gas to the EU, and although diversifying away from Russian gas is not unrealistic in the medium term, several technical and political obstacles must be overcome.
A barrel of crude oil costs under $50, having more than halved in price since June. This means wells are pumping out smaller profits, if not losses. When oil prices plunge and billions of dollars are at stake, oil companies tend to respond quickly to curb production. The number of active rigs has fallen 50 percent since October, according to Baker Hughes, the oilfield services company. This has led to layoffs, tighter budgets and fewer orders for equipment, all which hurt growth.
With crude oil prices dropping near $40 a barrel in March, area industry leaders are reacting to the deflated market prices by cutting jobs and ramping down production.