U.A.E. Says $50 "Won't Cut It" for Arab Economies, as a New Wave of Predictions Peg Oil at $70

U.A.E. says $50 "won't cut it" for Arab Economies

Even though many experts have warned that oil prices substantially higher than $50 would cause U.S. producers to ramp up production, thus contributing to the global glut and potentially compelling participants in the Organization of the Petroleum Exporting Countries' (OPEC) cutback agreement to reverse course, the United Arab Emirates says $50 "isn't going to cut it" for producers in the Arab countries.

Suhail al-Mazrouei, energy minister for the UAE, declined to quote a desirable price while speaking at the Atlantic Council Global Energy Forum in Abu Dhabi, but International Monetary Fund data released in October shows that the UAE will need $60 per barrel to balance its budget and a similar figure for most members of the Gulf Cooperation Council (an alliance of Gulf Arab countries).

If predictions made by Francisco Blanch, global head of commodities research at Bank of America Merrill Lynch, prove accurate, the good news/bad news scenario of higher oil prices will intensify in the near future.

Speaking on Bloomberg television, Blanch praised OPEC members and non-members for being committed to reducing output and said that "most of OPEC's objective should be met within a 12 month time frame"; based on this and "an outlook for stronger growth," his organization thinks oil will hit $70.

A radically divergent opinion of market trajectory – but one as equally familiar as that of Blanch's, at least to those acquainted with Middle East rhetoric – was offered Thursday by Khalid al-Falih, energy minister for Saudi Arabia; he told delegates to the Abu Dhabi energy conference that the world may run short of oil by 2020.

He said, "From what I can see, within two to three years there will be tightness because many projects have been deferred and delayed," adding that the situation could be exacerbated by the "not insignificant" natural decline in output from large, mature fields in the Middle East and elsewhere.

But for the time being, Falih siad "the good news is that we are moving towards a rebalanced market, too slowly for my liking; but the even better news is that the pace of re-balancing will be accelerated by the recent [OPEC cutback] agreements."

Whether one favours the scenario that the global glut will take years to clear and could be easily aggravated or that we're headed for a world oil shortage, one certainty is that despite OPEC members and non-members playing nice by reducing what were record levels of production, the cutbacks are temporary: Falih reminded delegates that the OPEC agreement will last only until mid-2017, at which point it will possibly be renegotiated, "for the specific reason that we don't know what will happen by mid-year."

Meanwhile, U.S. Energy Information Administration data released Wednesday shows that crude production rose notably last week, particularly in the lower 48 states, to 8.95 million barrels per day - the most since April of last year; this prompted John Kilduff, founding partner at Again Capital, to call the EIA data, "one the most uniformly bearish reports in some time."