Oil prices and all that

As a result, last Wednesday one barrel of Brent lost at London IPE 82 cents reaching the level of $22.86. In the evening of the same Wednesday at New York merchant exchange NYMEX one barrel of WTI blend 25.19 USD. The price here fell by 71 cents.

The oil market, as a quite sensible indicator of the international political life, instantly reacts at the events, in one way or another related with Iraq. Yet on Monday 11 November, the situation with prices at the exchanges was much more favourable. Oil futures grew during one day, reflecting the traders reaction on the increasing threat of war in Iraq, although they closed not on the highest marks. According to information agencies, during the sales the December futures for Brent oil at the International Petroleum Exchange (IPE) in London grew by 72 cents. December futures for WTI blend at NYMEX in New York grew by the same figure. Such was the oil market reaction at the negative evaluation of the resolution No.1441 of UN Security Council passed the day before on Friday by Iraqi parliament. Although the forecast expectations that Saddam Hussein after the parliamentarians theatrical antics, would anyway accept the conditions of the resolution, which would postpone the military actions, relieved the situation at the oil market to some extent. As a result, by the close of business December futures for Brent at IPE grew by 21 cents to $23.79 per barrel. December futures for WTI blend at NYMEX grew by 16 cents to $25.94 per barrel.

The situation changed abruptly, when the permanent representative of Iraq in UN Mohammad al-Duri handed a letter from the Foreign Minister of that country to Kofi Annan, UN Secretary General, informing that Baghdad "agrees to accept this resolution and cooperate with international inspectors". The letter had been approved by Saddam Hussein at a joint meeting of the Revolutionary Command Council and Regional administration of Iraqi ruling Baath party in Baghdad. The information on delay of the war in the region was immediately perceived at the leading exchanges of the world, which, as it is known, led to the fall of oil prices on Wednesday, while on Thursday the January futures in London and New York for Brent and WTI blends fell accordingly to $22.65 and $24.95 per barrel.

Close relation of Iraqi problem with the dynamics of international oil market provokes today a lot of discussions, associated with various types of forecasts and suggestions. Recently, the international experts discussed this issue in the Centre for Strategic and International Studies (CSIS) in Washington. According to their estimations, in the case of a war the prices for crude oil can treble and reach $80 per barrel. Of course, it is the worst and, obviously, improbable variant, which can take place, if the Hussein regime during military actions destroys its oil producing facilities, applies weapons of mass destruction, and delivers rocket blows on the most important oil areas of Saudi Arabia and Kuwait.

Other version, as it is known, is based on the suggestion on a successful outcome of the American military operation, which, let's remind, will entail a cardinal fall of the world oil prices. This scenario can be perceived, if not as a hendred per cent probable, then, anyway, as complying with Washington's plans. Lately, many publications write about it. For instance, "Arguments and Facts" wrote the following on Wednesday: "In general, the fall of oil prices is actually the main target in anti-Iraqi campaign. Its economy just gets into impasse with the current prices. And here our interests are contradictory. According to analysts, their following purpose will be a change of ruling dynasty in Saudi Arabia. This, in its turn, will bring about the self-annihilation of the Organisation of Petroleum Exporting Countries - OPEC -, so Amricans will be able to control more than a half of world black gold reserves".

Possibly, one doesn't have to be an anlyst or an expert to make an obvious conclusion that such situation does not correspond to Kazakhstani interests as well. In mass media they wrote and said a lot about the difference in prime costs of Caspian and Middle Eastern oil, which brings all raptures of our authorities about a supposed Kuwaiti future for Kazakhstan to zero, leaving aside the volumes of proven Kazakhstani reserves. Stephen Mann, special American representative for Caspian issues, well-known in our country, in the beginning of the month at a conference in New York, dedicated to the problems of post-Soviet Republics, organised by Harriman Columbian University, especially stressed: "Rich hydrocarbon reserves of Caspian Sea won't provide for Central Asia the same role, as Gulf plays on the world markets". "Caspian oil makes only around 4 % from the world reserves,- Mann explained,- It will never dominate on the market, although it will be able to play quite an important role".

As for the opinion of some representatives of Kazakhstani representatives about the oil prices oscillations, it is optimist as always. Grigoriy Marchenko, head of National Bank, has expressed on 7 November a certainty that a possible decline of oil prices "will not influence Kazakhstan seriously". Defining the precedent oil prices as "a military benefit due to the indefinite situation in Iraq", he reminded: "We always maintained the pont of view that a just scope of oil prices - is from $20 to $25 per barrel and the international market has already reached this". As G.Marchenko observed, in relation with a possibility to avoid a military conflict in Iraq, a certain decrease of oil prices took place, however, "this decrease is absolutely not critical for Kazakhstan". Unfortunately, the local bureaucrats refrain from any forecasts concerning the possible situation, when the oil prices fall significantly lower than "the just scope" or American plans for control over Iraqi oil are realised, the structure of the world oil market will start to change radically.

This variant is far from being just a hypothetical assumption - long term international economic forecasts are based on it, including those in the area of oil prices and their strategy and tactics. According to Mikhail Hodorkovskiy, chairman of the biard of Russian NC "YUKOS", after the beginning of military operation in Iraq oil prices will grow, but insignificantly, as the market "already prepared the potential for their growth", and in the case of its successful completion the prices will start to fall. "It's hard to say how much. They can become $14 and $12 зper barrel and they will stay at that level approximately one year. The lower they fall, the faster this period passes. If they stabilise with the fall at the level of $16, they can remain at the same level for up to two years", - M.Hodorovski believes. According to his assumptions, in the case that the operation is completed successfully for USA, approximately in three years after the beginning of investments into Iraqi oil area, the prices will reach "equilibrium" between $18-23, but the structure will strongly change.

Summing up his comments for the "Independent paper", head of "YUKOS" stressed that in the case of a war in Iraq the world oil market will undergo significant changes and Russia will have to "improve its own production to survive in the conditions of harsh competition". "We must apply modern technologies, work at the good fields, which we have more than enough in our country", - M.Hodotrovski said.

However, if, as according to the Russian oilman, Russia can and must achieve "equal participation - together with American and European companies in the bids for Iraqi fields", for Kazakhstan this prospect is more than vague. Therefore, in this quite difficult situation, for this country and its oil area the thesis on reforming industrial sector. At a press conference in Astana Mazhit Yessenbaev, Minister of Industry and Trade, observed that the main targets of the country's industrial policy are the definition of the promising processing facilities, an increase of the production quality, modernisation of the main funds of the enterprises, studying external markets, as well as "accumulation of scientific and technical potential of the country". "Together with foreign investments, the State investments into various areas of the industry will play an important part, as well as settlement of financial institutions functions", the Minister stressed. In other words, this reforming will allow to develop the industrial basis of the economy, based on "hi-tech competitive production". The program of Caspian shelf development will have to be based on the same principles, its consideration in the government is planned in December of the current year. According to V.Shkolnik, Minister of Energy and Mineral Resources, during the bids the preference will be given to those countries that will "bring in more of the newest technologies" and create more joint ventures, "including scientific ones". Apart from that, the problem of pipeline routes diversification becomes more and more relevant, as well as participation in the shelf development of those countries, which seek to lower their dependence on Middle Eastern oil. The growing interest of South Korean companies to Caspian shelf is quite characteristic.