Oil Price: AGRAVIS Expert Analyzes the Current Situation

The oil price is currently lower than it has been for a number of years. At the beginning of December, it reached its lowest level since February 2010, standing at 70 US dollars/barrel of Brent. AGRAVIS expert AGRAVIS expert Matthias Gernt has a look at the current situation and explains the reasons for the drop in price.

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Mr Gernt, what are the reasons for the constant reduction in the price of oil?

Matthias Gernt: There is a glut of oil on the global market – extremely high supply coincides with weaker demand. According to data provided by the International Energy Agency in Paris, the demand for refinery products in Europe in 2013 was 100 million tonnes lower than five years ago. Apart from energy conservation measures, the main factors behind this are the weak economy in Europe and the effects of the financial crisis.

Are there other factors affecting pricing?

Matthias Gernt: Another driving force behind the supply glut on the international markets is shale gas extraction – particularly in North America. Thanks to shale oil, the United States is on the road to becoming self-sufficient in oil. According to the Energy Information Service, the import ratio of the United States, which has now fallen to 47 percent, from 67 percent in the year 2000, is an indication of this. The effect is gathering pace, as the lower raw material and energy costs are resulting in high utilization of the American refineries and plants that were due to be closed down are continuing to produce. The USA now even exports petrol, which was previously imported.

To what extent do consumers benefit from these developments?

Matthias Gernt: The effects of the low international oil price are delighting German consumers. At the beginning of December, standard quality fuel oil cost around 66 euros per 100 litres, given a purchase quantity of 3,000 litres. The price level is the same as the situation in the autumn of 2010. The low prices provide the end consumer with motivation for topping up tanks again before the heating season. Levels of provisioning amongst private households are correspondingly high.

But fuel prices at filling stations are also at a very low level compared with previous years. On 1 December 2014, for example, the average price for diesel in many German towns was around 1.27 euros and that for Eurosuper E5 1.44 euros.

How, in your view, will the price develop further?

Matthias Gernt: The economic prospects in many parts of the world are gloomy, such that the market also expects demand for oil to be low over the next few months. The raw materials markets are reacting to the sceptical economic prospects with price reductions.

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