The Strategist

Eight black swans for the energy market in 2018

12/25/2017 - 14:09

The end of the year is the time to sum up and make forecasts for the next year. This concerns, among other things, the energy and the oil markets.

As a rule, experts make various forecasts at the end of the year concerning such aspects as OPEC policy, energy consumption, raw material prices, car sales in China. However, only a small part of them do come true. Therefore, many analysts believe that it is almost impossible to predict the future, as in today's world there are too many surprises that can affect the markets. Instead of making forecasts, let’s consider unknown data that will influence the markets next year.

1. Shocks in the markets

The introduction of energy projects requires huge investments. Shocks in the capital markets lead to disruptions in the energy business, too also. Financial technologies change cash flows and access to capital. Several years ago, some experts believed that autonomous cars were almost the only factor affecting the oil market, but the situation is more complex, and financial technologies also have a serious impact on energy.

2. Bitcoin

It seems that crypto-currencies, such as bitcoin, have little in common with energy, except that they require huge amounts of electricity. However, the blockchain technology, underlying the crypto-currency, will have an impact on finance, as well as consumption of primary energy resources. Bitcoin mania is speeding up and blockchain-based platforms for transactions are being legitimized. Experts warn that changes that are not expected in the very future of time can come much earlier.

3. Discipline in the cartel

Some experts believe that North American oil companies should join OPEC meetings. But there are a number of other experts who recall that in the second half of 2017 the Western investors have already had a significant impact by limiting the capital channeled to oil producers. Investors require companies to generate revenues, rather than increase production, and this limits many companies in the matter of spending on new projects.

4. Russia and OPEC

Another issue that worries many experts is whether Russia will continue to cooperate with OPEC. As oil prices soar, there is an increasing desire to extract more to get higher profits. Accordingly, the question arises whether the restriction on extraction will remain if prices go higher.

5. Geopolitics in the Middle East

This is one of the most obvious factors of instability? The dependence of the world on this region, which is characterized by extreme instability, is growing. By 2018, world oil consumption will reach 100 million barrels per day. For now, the situation in the oil-bearing region itself is far from peaceful. Any extreme situation can lead to serious disruptions in the supply of oil.

6. Canadian gas prices

Wells in North America produce gas at a very low cost. This leads to changes in issues such as storage, transportation, consumption and price. Now experts give the most optimistic forecasts for Canadian gas. It is unknown how long such a situation will remain 

7. Electric cars

Increasingly more companies are producing electric vehicles, and experts predict the growth of this market. The spread of electric vehicles will accelerate, which causes experts to doubt the future demand for oil. However, statistics indicate the opposite: the demand for oil exceeds the average for 10 years.

8. Compliance with the Paris Environmental Agreement 

In 2018, the Paris agreement will be operational for 3 years, and new goals will appear. According to experts, they will be unattainable both within the framework of one country and within the whole world. The biggest uncertainty here is related to how local governments will behave and what measures they will start to take when they understand this.