At the time of writing of this article price of oil stepped over a mark of 60 dollars per barrel, having actually returned to price indicators of the pre-crisis period. For the last year the question of the price of black gold was one of dominating, conceding only to sad statistics of growth of incidence of COVID-19.

People were interested not only in ordinary questions (for example, how much is a barrel today?), but also in fundamental questions: on what the price depends and whether it is possible to affect it. As practice showed, in medium-term prospect it is possible to affect the prices but only by common efforts of large producers.

The end of the end of history

In the early nineties Francis Fukuyama applying for the philosopher’s rank formulated the concept of the end of history which was arrived on time in view of collapse of the USSR. It resulted from quite primitive world outlook concept dominating in the USA which assumes that the propeller of historical process is fight of democracy against tyranny in what vulgarization of ideas of Aristotle and Plato about a state system is clearly visible. The liberal and democratic states allegedly do not compete, treated each other validly and do not test thirst for domination. Therefore the conflicts between the states are impossible if the liberal democracy is everywhere. The history allegedly ended.
Actually the end of history instantly went on a regiment of scientific and philosophical absurd where it is now together with Ptolemy system, the evolutionary concept of Lamarck and libertarianism. After all, the history also did not think to come to an end. Last year became one of the most eloquent proofs of this thesis.
It brought with itself not only the next epidemic which captured the planet and brought down world economy but also a number of unknown events for the market of hydrocarbon raw materials. For example, the prompt decline in demand breaking all records on absolute measures and negative prices on black gold. It is a fine object for researchers.
But on a large scale, nothing is new. The fluctuation in prices of oil happened not once. Crises — age-mates of the branch. In any case, if to reckon from the second half of the XIX century when the world market of oil was created. Of course, black gold was extracted and 2 thousand years ago. Besides even then it was theoretically possible to pour «stone oil» in a pythos and to bring to other country. But existence of such an opportunity does not mean emergence of the world market. Eventually, now we can send baseball gloves to any country of the world, but it does not mean that there is a world market of baseball gloves.
The world market of oil was created at the end of the century before last when there was the second scientific and technical revolution. Lamps are known since the most ancient times, but only the oil lamp could present to the world «new light» which appeared enough to extend the working day. At this moment oil started trying on itself a role of blood of the world economy.
The glow lamp could dump it from a pedestal. But there ascended the new star — gasoline which was earlier considered ordinary-looking and necessary to nobody, it was considered a younger brother of kerosene, bargaining on half-cent for liter, suddenly found incredibly perspective market — internal combustion engines. Gasoline moved world borders apart for ordinary people, having provided balance of power, ideal for the time and specific weight of fuel.
The World War I fixed an oil role as one of basic goods for all world economy. Today the land transport consumes about 49% of all extracted black gold.

«To work but not to panic»

Rapid development of the young, but the extremely perspective market of oil alternate between deficiency and overproduction crises. If in January, 1861 a barrel of oil cost 10 dollars (in the USA), by the end of the year its price fell to 10 cents. But already in the second half of 1863 this indicator grew to 7.25 dollars for barrel. There were new and new people to branch struck with stories how 1 dollar of investments turns into 15 thousand dollars of profit. As it should be expected in this situation, in 1866-1867 oil fell in price three times.
Processing industry suffered also except production. So, during 1865-1870 kerosene became cheaper twice. Capacities of oil processing installations on two thirds exceeded requirements of the market (today the situation is not so sad, but parallels are easily looked through).
Problems of branch were obvious; therefore unsuccessful attempts to limit production were made in the 1870s. All this generally concerned the United States. The oil branch was also developed in other regions of the world, including the Russian Empire, but development models, as well as financial and technical resources of our country, nevertheless were much more modest.
It is remarkable that for 150 years the USA did not learn to treat oil fever. But in the new millennium it appeared in the slate form. For the rest it is possible to draw an unfavorable conclusion that numerous lessons of take-off and falling of branch in the second half of the XIX century were not acquired.
Even the news of 2020 shocking in essence that oil costs cheaper than water were not something unique. After all in the same second half of the XIX century there was a moment when it was possible to call oil black gold just with a big share of irony as the price of it fell to 48 cents. Drinking water was three cents more expensive.
Oil did not stop on it and continued falling to 15 cents per barrel in 1887. Yes, character of these prices differed from what we got used today — at that time in much bigger degree was expressed regional and high-quality factors as the world market was in a formation stage. There were no those indicatives to which we got used today, and transport infrastructure was less developed. Efforts of one-two chemists could raise the price of the oil grade low-demanded because of physical and chemical properties.
The extremely inconsistent, but from it not less great businessman, the founder of Standard Oil John Rockefeller, looking at the next falling of the prices, declared: «We, unlike others, have to try to act, but not to panic when the market lays down on the bottom».
«To work, but not to panic» — an excellent motto if you have enough means for preservation of investment activity during the crisis period. As crisis of 2020 showed, Russian companies had enough of them, though on a global scale investments in oil and gas branch, according to the International power agency, fell to a third. Terribly there is a lot of, but it is impossible to call it a record.
2020 was really record-breaking in the depth of a price hole in which the oil price was ready to fall. Earlier this mark was at the level of 3 cents per barrel, reached in 1901 (though in the early thirties some grades for the short period of time failed to 2 cents). In April, 2020 the future contract for the American WTI (with delivery in May) fell to minus 37.63 dollars per barrel.
The large-scale (historical!) incident caused a chain of events. Share prices of the companies from fuel and energy sector decreased. Numerous statements for a rotary stage in the history of the American oil began to sound. Forecasts about inevitable negative prices of the Russian grade of Urals and natural gas in the European market poured down, as well as the rules of the auction at the Moscow exchange were changed.
That situation could not arise in the past though periodically for two previous centuries there were similar prerequisites. Here we need to talk about the nature of price of oil and whether it is worth trying to foresee it.

The OPEC solves nothing

Crisis of 2020 made actual disputes again how the price of oil is formed, what influencing factors are the main, what minor and what can be neglected at all. The main shaft of criticism fell upon fundamental factors.
From the first days of existence of oil industry there was a visible effect of such fundamental factors as supply and demand on the price. Value of costs of production was also obvious. This factor at the beginning of the world market large international players struggled with regional competitors. The large company entered the new undeveloped market and started dumping actively. Working at a loss, it ruined local producers, bought up their assets, and then raised the prices. Now the similar trick cannot almost be done. But fundamental factors did not disappear.
Actually, sharp decline in demand for black gold in the spring of last year also led to a price storm. Influence of balance of supply and demand on the price is seemingly indisputable. But it is impossible to accept this simple fact at once as the essence of disputes on formation of the oil prices carries practical but not academic character. That is there is a search of answers to two main issues. First, as it is possible to operate the prices effectively. Secondly, as it is possible to predict them.
Certainly, oil industry workers also felt influence of level of demand and the offer on the price of black gold on themselves and the business 150 years ago. But the first widely applied methods of forecasting of prices of oil began to appear in the 1920-1930s. By that moment the world market was finally created and considerable experience of take-off and falling which was saved up transparently hinted that steady investments require exact forecasts.
In process of complication of the market methods of modeling of dynamics of price of oil also became complicated. By this moment, there are tens of such methods by estimates of experts
Traditionally counting to numerous crises of the oil market starts being conducted since 1973, probably, meaning that more and more early crises are not so important for current situation. And it is the truth in a part. After all then the cartel simply did not show its force. It became an important market factor which influence started being considered in new models by means which the oil prices were predicted, besides the factor of OPEC was so important that it involuntarily began to be identified with balance of supply and demand.
Within the last year some respected experts surely proved that «the OPEC solves nothing», meaning senselessness of the transaction of OPEK+. Also it was talked not of a nihilistic position according to which nobody will observe the obligations for oil production reduction assumed within the transaction. It was talked that the agreement tries to reduce production to level the offer with the fallen demand, and the balance of supply and demand in the modern world allegedly makes the minimum impact on pricing, and where bigger influence generates information noise and the related speculation.
The OPEC really did not solve anything (or nearly anything) in the oil market since 2014. This statement needs to be understood as intended exaggeration. And its essence that one thing is to influence the market with a capacity of 60-65 million barrels per day, and another one- the market with a capacity of 93-101 million barrels per day. Practice shows that for the effective stabilizing influence on the prices through change of level of production it is necessary to occupy not less than 40% of the market. By the way, it is not necessary to borrow a dominant position to destabilize the market. It will be enough overproduction in 1.5-2 million barrels.
The last ten years a share of cartel in the world market made about a third. They did not have enough weight. It was provided by Russia and a number of the joined countries within the first agreement of OPEK+. And in April of last year when the market plunged into the deepest crisis, the second transaction was strengthened involuntarily by the United States. Under the influence of the natural reasons their production «integrally» failed on 2 million barrels per day.
However the amazing story of the May futures contract for WTI involuntarily sets thinking on really important role of speculators and information noise in the market of oil.

Earth and price hole

The wide audience already suspects exchange trade of continuous manipulations with the prices and believes that it gives advantage to speculators only. And «pure market experts» assure that exchange trade is the only effective tool for formation of the honest price and it has not minuses. We believe that truth is in the middle. Though a hammer is an effective tool to nail, but it is possible to do harm to life and health with its help.
Exchange trade is really an effective tool, but it can be used by unscrupulous businessmen, therefore it should be improved. Also an improbable combination of circumstances can do harm. Therefore rules of the auction are periodically revised.
The futures contract, certainly, arose not as object of exchange speculation. It arose as a peculiar obligation to sell a certain volume of oil at determined price in the future. Besides, it simplified planning of expenses on oil products.
Fuel oil was the first oil product which in the late seventies got trade in futures contracts. According to a number of analysts, futures contracts quickly became a dominating part of the trade system establishing price level.
But except the persons interested in receiving goods (in this case oil), speculators also started taking part in the auction. And in the real situation of April, 2020 some adverse factors met at once.
For the American market the same problems which the whole world faced were characteristic but with some local color. So, April was a month of the maximum decline in demand for black gold (25-30%). «Organic» falling of production in the USA did not keep up with so prompt reduction. Thus a considerable share of the raw materials made in the States was exported though the country remained the large importer of oil. The matter is that owing to physical and chemical characteristics a considerable part of the American oil did not find demand in domestic market. Earlier there was an opportunity to send all surpluses abroad. But demand fell worldwide. A part of the streams which are usually going for export was developed towards the American storages which were not bottomless. It also created a condition for impetuous falling of price of the deliverable futures contract in the day of expiration.
This incident could not cause any long-playing consequences for the American oil and gas sector, though it also was an offer surplus symptom in the conditions of a lack of capacities for oil storage. Something like that occurred more than hundred years ago. But then due to the lack of the developed market tools not the quotation dropped in a bottomless price hole, and the American oil industry workers had to pour out purely physically excess of black gold on the ground. Now the same act would cause large international scandal.

A share of «paper» oil

But the question of influence of speculation on oil quotations was not settled on it. A share of the «paper», not assuming delivery oil became so great that horrified a number of researchers who counted that its volume in one hundred times exceeds the volume of real oil. Let’s not undertake to argue with this statement, we will simply record a standard conclusion which is drawn on its basis: prices of oil and is not connected with fundamental factors at all, they are formed only at the expense of «paper».
The question, whether really speculators operate the prices, was not idle. Who has the greatest impact on the oil prices, to be exact, who is guilty of the most unexpected and sharp fluctuations of them, has not only economic but also legal character? For example, the changes in price in 2003-2008 were investigated by the Congress of the United States and the American Commission on trade in commodity futures (Commodity Futures Trading Commission, CFTC). If someone loses a lot of money, a question of the one who is right who is guilty and who is absolutely not privy, becomes extremely sharp, especially in the situation when money is lost by such state as the USA.
A conclusion which can be made of the work done by transatlantic experts is that the role of speculators is exaggerated, and the greatest impact on the prices is made by important political events. Other researches showed that financial speculation has significant impact on short-term volatility but the prices depend on this factor only for 10-35%.

Songs of experience

Experience of the price crises in the market of hydrocarbon raw materials happening for the last seven years indirectly confirms these conclusions. Quotations are very sensitive to information background. Events and their interpretations create expectations of the market. Councils which are received in this regard by the trader, have inconsistent character. It is offered to watch to news background and to work according to the most widespread expectations or on the contrary: the dominating expectations including broadcasts of respected business mass media should be treated by contradiction. Somewhere here noise traders are also born.
Expectations, comments of experts, loud events, as a rule, make short-term impact. Nevertheless fundamental factors are the cornerstone. And the basic is the level of costs of oil production. Certainly, it can change depending on a condition of the market, but in general this factor is expressed by a formula «cheap oil in production did not remain». Around the world conditions in which it is necessary to conduct production become complicated. Already today it is necessary to invest to compensate the dropping-out volumes and to satisfy demand which will be the day after tomorrow.
The OPEK+ format acted as an effective regulator of the market. As practice showed, management of production level really favorably affects the prices. In fact the main actual objective for the countries concluded the agreement is creating conditions for sale of the excess stocks which are saved up during the spring of 2020 which. The OPEC + at the same time successfully influences fundamental factors and information background. It is a paradox, but the last months any solution of OPEK+ is perceived very positively. Do not they want to increase production? It is perfect, they avoid a surplus. Will they want to increase production? It is perfect, the world demand was enough restored.
Thus healthy skepticism which reminds of possible renewal of steady growth of production in the USA remains in information space.
In this regard it is possible to tell that in the conditions of crisis it is not important, how much oil will cost during this or that period of time. It is important, how much it has to cost to provide an optimum level of investments. If the prices are too low — investments fall, too high — there is an excess investment which will lead to overproduction crisis.
By the way, it is quite probable that the classical OPEC should be replaced with OPEK+ when modeling dynamics of the prices. Let’s pay also attention that the climatic factor has not been fully revealed yet. Reasoning on it is usually reduced to an assessment of how the power influences climate then in most cases the power is sentenced to general gardening. In much more rare cases authors finish the reasoning with cheerful «the planet is in order» and send us to the works of the immortal American satirist George Carlin. Impact of the changing climate on power is much more significant from the point of view of forecasting of prices. After all already now hurricanes can be considered as a significant factor at oil production assessment in certain regions of the world.
For our country forecasting of dynamics of the prices is important at least as indicator. Last year the income from export of hydrocarbons fell approximately on 40%. But now quotations quite surely aspire in a price band, comfortable for world oil and gas branch (by different estimates, from 70 to 85 dollars). So far, despite an obvious increase in prices, forecasts look moderate. For example, EIA declared that in the current year prices of oil will average about 50 dollars for barrel.
One can be told precisely already today: current coronacrisis will end, but through some time it will be succeeded by a crisis. And as it is inevitable, it is necessary to prepare for it. The situation which happened in 2020 showed that Russian oil and gas branch appeared one of the most prepared in the world. It acted but did not panic.