Looking back, 2014 proved to be a particularly difficult period for energy prices, which posted their deepest annual correction since the financial crisis of 2008. Prices for WTI and Brent crude fell 46% and 48%, respectively in 2014. The correction in refined products was as striking; when measured in US sollars, the price of diesel dropped 40% and gasoline plummeted 48%. Despite the fact that it is difficult to know where prices will go in 2015, we believe that the correction may continue in the short term but that the market is increasingly attractive to businesses that want to implement hedges for the second portion of 2015 and 2016.
- Basing its 2015 budget on a price of $60/barrel, Saudi Arabia is planning $229 billion in spending this year, compared with $191 billion in revenues, for a deficit of $38 billion. To balance its budget, the second largest oil producing country in the world would need crude to sell at an average price of $72/barrel in 2015. Saudi Arabia has the lowest production costs in the industry and vast currency reserves, so it is well positioned to defend its market share and put additional pressure on other producing countries.
- The situation in Russia, the world's largest producer of crude oil, is very different. The Russian rouble has lost 70% of its value since June 30, 2014, and the drop in crude prices and international sanctions are pushing Russia toward recession in 2015.
- Ending an embargo that has lasted 40 years, the U.S. government has decided to allow exports of light crude oil. This change will allow U.S. producers to sell their output at higher prices on international markets. We would also like to take this opportunity to wish our clients a wonderful and happy 2015.
Emmanuel Tessier-Fleury