Experts: Oil Prices to Remain Low in North America

January 6, 2015  

Competition is expected to intensify between Canadian oil and Saudi oil refineries in southern US, which may keep oil and gas prices low over the next year.

Citigroup’s report published this week noted that the excess supply of crude oil to refineries, caused in part due to the increase in crude oil exports from Canada, has changed market conditions, even without the completion of a controversial Keystone oil pipeline. 

The report’s authors estimate that oil prices in 2015 will be affected to a great extent by a revolution in shale oil production in the US, Saudi Arabia’s resistance to reduce oil production and the weakness of the global economy.

Estimated of oil prices were lowered, according to which the price of a barrel of oil will be 55-63 dollars depending on the type of oil – and remain so for some time. 

Competition over US resources is fierce due to their output. By 2014, Canadian oil producers could export only 118 thousand barrels per day of crude oil, the amount of which is only about one percent of the output of refineries 50 refineries in Texas and Louisiana, which can process 9.4 million barrels of oil per day.

The southern section of the Keystone oil pipeline has improved oil prices and transportation drastically, as it ferries oil to refineries from Texas and Louisiana to Oklahoma. 

If approved, the pipeline would then ferry oil from Canada into the US as well, and could lead to a North American contender in the oil business, which until now has been largely dominated by the Middle East. 

At the same time, US government approval to export freely crude oil is a boost to oil producers, who will try to maximize the possibilities to develop the oil shale market, and that could directly impact on world oil prices.

Citigroup’s report estimates that the government’s new policy in the field of oil production will increase oil supplies to export one million barrels per day by the end of this year.

Saudi Arabia distributes its exports throughout the oil market in an attempt to lower its price in order to make shale oil production economically unfeasible for its competitors, and to harm the economy of main rivals Iran and Russia.

However, the parallel decline in prices affects the income of all oil producing countries, and the implications for economic and social stability in these countries can be difficult if they do not find alternative sources of income.

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