Falling oil prices – risk or opportunity for exporters?
The price of oil has fallen by more than half since June 2014 and the shock waves are emanating out across the global economy – but what impact does this have upon potential exporters to Kazakhstan? What appears to be bad news at first sight, could in fact be masking reasons to be optimistic about the opportunities out there….
The current price for crude oil is hovering at about $50 a barrel – in January, the price actually dipped below the $50 mark for the first time since 2009.
What’s the reason for the fall in the price of oil?
Over the past decade, oil prices have remained high, generally remaining around $100 a barrel over the last four years – conflicts in the Middle East and major oil producing countries combined with increasing global demand, particularly from China, all contributed to keeping the oil price high. But sustained high prices led to the US and Canada stepping up their own production – new techniques including fracking and horizontal drilling to extract oil from shale formations and other non-conventional methods of extraction have meant a surge in supply. Coupled with a fall in demand in other countries arising from struggling economies, a price slide was inevitable.
The oil cartel Opec met in November 2014, with a cut in production widely anticipated as a means of shoring up oil prices. In fact Opec determined not to cut production, sending the oil price plummeting again.
Impact for Kazakhstan
The Kazakh government has responded to the falling oil price with a view to minimising negative impact on the country’s economy. In the capital of Astana, the focus seems very much upon belt tightening. With a recent PwC report predicting that the oil price will average around $55 a barrel in 2015, many countries will need to do the same to balance their budgets.
Risk or opportunity for potential exporters to Kazakhstan?
For oil companies to operate profitably against an average price of $50 per barrel, they are bound to look to reduce costs and deploy new strategies – this could lead to significant changes to the way they operate. Our sources tell us that, in spite of the drop in oil price, the oil companies in Kazakhstan still have capital budgets and therefore funds to spend, albeit at reduced levels. Moreover, they are willing to invest, especially if companies can come up with ways of reducing operating costs or increasing efficiencies, productivity, innovation or safety.
This is why we’re particularly interested in innovative UK SMEs who can help drive up efficiency or solve problems with new products or technologies which are not readily available in Kazakhstan.
If you think your SME has got what it takes to break into exports to Kazakhstan, we’d love to hear from you! Contact us now to discuss current opportunities.