PRIX Index Forecast: No Change In Global Oil Exports

Will oil exports continue flowing onto the world market, suppressing the oil price? The PRIX index forecast for the first quarter of 2016 has just been calculated and indicates that supplies from the world’s 20 largest oil exporters are going to remain unchanged, contributing to keeping oil prices low.

Highlights from the new forecast:

• Saudi Arabia’s index value has dipped below 50 for the first time in 12 months, a possible sign that the kingdom is getting closer to ending its strategy of high oil supply, though most of the country analysts do not expect this to happen quite yet.
• Iran’s index value is highest of all, implying that the PRIX country analysts are confident that Iran will rapidly raise exports by the end of the first quarter as sanctions are reduced.
• Also Russia’s index value is high, indicating that neither the oil price nor sanctions over the conflict in Ukraine are expected to stop Russian output from continuing to rise in the short run. If one aspect of the current situation is a supply war between the world’s two biggest oil exporters—Russia and Saudi Arabia—Russia is not blinking yet. Russian oil companies are cushioned by the dramatic fall in the value of the rouble, in which many of their costs are denominated. US shale producers (with their costs in dollars) and the Saudis (with their currency pegged to the dollar) do not enjoy this automatic ventilation.
• Sooner or later, the low oil price is likely to trigger political unrest in one or more major oil exporting countries, possibly leading to a fall in exports. The new low PRIX index values for Venezuela and Nigeria may signal that the risk is high in these countries.
• In Libya, a moderate rise in oil exports is expected. Libya’s roller coaster PRIX index values over the past year have reflected the unstable situation in the country, and for the coming quarter the situation for exports seems to be improving.

The PRIX index is an analytical tool for oil market forecasting based on the input of 265 country analysts. Their insider views on the 20 countries covered by the index are brought together using a diffusion index formula similar to a purchasing manager index (PMI). This makes it possible to put a single global number on the supply-side risk in international oil markets. For further information and analysis of the implications for oil markets, see the new analytical note.

PRIX index Analytical Advisor John Friedman has made the following statements for the benefit of the press:

• "Everybody is waiting to see who will blink first in the oil price war. The current PRIX index update indicates that neither the Iranians, Russians, or Saudis are giving in—yet."
• "All the OPEC producers including Saudi Arabia are feeling the pain of lower oil prices, but nobody wants to give in. At this point they all desperately need the cash, so they are stuck in a death spiral in which cartel solidarity is increasingly difficult to achieve."
• "The Iranians and the Iraqis are hell-bent on taking back their market shares—fair enough."
• "Don’t hold your breath. So far neither sanctions nor the oil price have dented Russia’s oil exports."
• "We’re still in a bear market for oil."

Background information

Political events can have a powerful influence on the oil price. Historical examples include OPEC’s 1973 embargo in reaction to the Yom Kippur War and the 1979 Iranian Revolution. Analysts, traders and academics have had few and weak tools to handle such political events compared to what is available on economic aspects of oil price formation. The PRIX index attempts to fill this gap with a metric on export trends from world’s 20 largest oil exporters for the coming three months. The index is similar to a purchasing manager index (PMI). PMIs are based on polls of purchasing managers in companies across a sector or an economy and are used to forecast business cycles and economic trends. The PRIX index is instead based on input from experts on the world’s 20 largest oil exporters, and forecasts how political developments will affect exports during the coming months. The index was first published in January 2015 and is updated quarterly. The PRIX index is made freely available to the public and is neither dependent on nor owned by any other institutions, companies, or governments.

Contact

For further information, see prixindex.netor contact spokesman Indra Overland at info@prixindex.net. To sign up for future updates of the index, go to http://prixindex.net/receive-index-updates/or https://twitter.com/@PRIXindex.