Since a large share of the turnover of VKG is made up of the sale of oils, the financial indicators of the Group are mainly affected by what is happening at the global oil market. Global factors put pressure on the oil market and change the architecture of the economy completely, aggravate competition, and boost price volatility.
Oil reserves in the OECD countries
According to the assessment of the experts from the OPEC's Joint Technical Committee, the commercial oil reserves of the member states of the Organisation for Economic Co-operation and Development (OECD) by the end of 2019 will have exceeded the average 5-year rate by 170 million barrels if in the first half of 2019 the validity of the OPEC+ Agreement expires, and they will fall by 50 million barrels below the 5-year average if the OPEC+ Agreement remains in effect until the end of the year.
Global dynamics of oil prices
Against the background of the favourable of macro-environment, in 2018, the prices for different kinds of fuels continued to grow. On the one hand, the reason for that was an increasing demand for fuels, i.e. according to the estimates of the International Energy Agency (IEA), the global demand for fuels increased by 1.2%, reaching 99.2 million of barrels per day. On the other hand, the growth in prices was promoted by an agreement made between the OPEC and Russia concerning cutting down on production volumes as well as an abrupt decline in production in Venezuela. Even though the growth rate of production of shale oil in the USA has partially compensated for a decrease in production volumes in the OPEC, the decision made by the American president in May concerning the renewal of sanctions against Iran increased the price pressure even more, and by October, the prices for Brent crude oil reached 86 USD/bbl as compared with 66 USD/bbl at the beginning of the year. An increase in production volumes in the OPEC, as well as a relief of sanctions against Iran and the signs of the economic slowdown, brought Brent prices down to 50 USD/bbl fast enough by the end of the year According to the results for the last year, the price was 71.04 dollars/barrel, which is 31% higher than the average price in 2017 (54.3 dollars/barrel).
VKG sells a major part of manufactured oils with 1% of sulphur content based on the price for fuel oil. As compared with Brent crude oil, the 1% fuel oil market is less liquid, which is why the price for fuel oil can fluctuate differently from Brent, depending on the ratio between offer and demand existing at the market. In addition to that, the financial indicators of VKG are also affected by the dollar rate, which in 2018 strengthened once again and facilitated an increase in profitability. All in all, the situation in the market in 2018 was favourable for VKG. It was only a fast decrease at the end of the year that caused some uncertainty with respect to the future.
In 2018, the Estonian economic environment was also characterized by a continued growth. According to Statistics Estonia, the GDP in Estonia increased by 3.9%, which, compared with 4.9% in 2017, was more moderate, but still it exceeds both the preceding years and the global economic growth on the average. The Group is still concerned by the brisk growth of the average gross salary, which went up by 7.3% in 2018 (as compared with 6.5% in 2017), exceeding the average economic growth for the seventh year in a row. With due consideration of the peculiarities of the Estonian labour market, we cannot expect the slowing down of the growth in salaries in the nearest future, which is why, in order to provide competitive ability, the added value that accompanies workplaces should go up continuously.
