Market forces responsible for low oil prices, says Barkindo
The new Secretary-General of the Organisation of Petroleum Exporting Countries (OPEC), Mohammed Barkindo, has described the fall in crude oil market from above $100 per barrel to less than $50 a barrel as price correction.
Barkindo said in the latest OPEC bulletin that crude oil prices at $100 to $140 was unsustainable, adding that it was only normal that market forces were helping to normalise the prices.
According to Barkindo, “it is quite obvious; almost elementary to all commentators that what we saw prior to the correction in 2014, when oil sold for as high as over $100 a barrel and at a time $140 a barrel was something that was abnormal.”
Meanwhile, the International Energy Agency (IEA) said yesterday, that rebalancing the oil market might take longer than expected.Barkindo said that there are certain structural changes that have gradually been taking place in the global economy and impacting the energy scene, particularly oil and gas.
“The combination of all those factors and a robust economic growth led to the skyrocketing of prices that we saw, which was unsustainable and, at the end of the day, could not have been positive to the global economy.
“Now what we have been seeing since 2014 is a correction of that. The quest and efforts of OPEC in stabilising the market at various times is something that is ongoing, it is a continuous business.“The concept of fair price, or the equilibrium price that will be fair to both the consumers and producers, is a task that has been carried on by OPEC throughout its existence. And from 1986, other producers and consumers saw it as the responsibility for all, not just OPEC.
“Therefore, at the moment, we have seen a rebounding of prices from the lows that we saw in January and February. The issue is that it will continue to hover within that range for some time, although we have started seeing the hiring of new rigs in the United States, particularly in the shale-producing regions. But it is most unlikely that those additional rigs will translate into additional volumes.
“That may not negatively impact on prices. So, we will continue to do whatever we can, together with non-OPEC producers in the producer/consumer dialogue.”“Consumers generally are averse to volatility of prices and the global economy is also sensitive to price fluctuations. OPEC has made the central point in its statute the stability of the oil market and all decisions of OPEC are geared towards that”.
“The reserves are plentiful, the theory of peak oil is still fiction, and technology is advancing for the cleaning of oil to make it more environmentally friendly. Also, populations are growing and large populations are being pulled out of poverty. Therefore, the combination of all these factors makes oil the fuel of choice for the foreseeable future. By extension also, you would expect that OPEC will continue to play very key roles on the energy scene.”
According to IEA in its September report, global oil demand growth is expected to slow from 1.4 mbpd in 2016 to 1.2 mbpd in 2017, as underlying support from low oil prices wanes.
It said that the 2017 forecast, though still above-trend, is 0.1 mbpd below the previous expectations due to a dimmer macroeconomic outlook. “When will the world oil market return to balance? That is the big question today. With the price of oil at current levels, one would expect supply to contract and demand to grow strongly. However, the opposite now seems to be happening. Demand growth is slowing and supply is rising. Consequently, stocks of oil in the Organisation for Economic Co-operation and Development countries are swelling to levels never seen before,” the IEA said.
IEA stated: “Global oil supply rose by about 0.8 mbpd in July, as both OPEC and non-OPEC production increased. Output was 215 kbpd lower than a year earlier, as declines from non-OPEC more than offset an 840 kbpd annual gain in total OPEC liquids.
“Non-OPEC production is forecast to drop by 0.9 mbpd this year before rebounding by 0.3 mbpd in 2017. OPEC crude oil output rose by 150 kbpd to 33.39 mbpd in July as Saudi Arabia pushed output to the highest ever and Iraq pumped more. Robust Middle East production lifted total OPEC crude supply 680 kb/d above a year ago and held output at an eight-year high.”
The agency expected global refinery throughput in third quarter of 2016 to rise by 2.2 mbpd from a weak second quarter of 2016 to a record 80.6 mbpd. “At only 0.6 mbpd above a year earlier, third quarter 2016 runs will lag expected demand growth, eroding some of the product stock cushion built up since mid-2015. Runs are forecast to decline seasonally to below 80 mbpd in fourth quarter 2016.
IEA said that an OECD inventory overhang continued to shift from crude into products during June, with commercial stocks swelling by 5.7 mb to a record 3 093 mb., “Declines in crude oil holdings were offset by an above average product build of 15.9 mb, with big volumes of US propane and other Natural Gas Liquids (NGLs) moving into storage,” he said.