EMEA News
Falih: Oil Markets Are at the End of Downturn
In what could be perceived as another attempt to portray itself as the Organization of the Petroleum Exporting Countries' (OPEC) good guys instead of the heavies, Khalid al-Falih, energy minister for Saudi Arabia, said on Wednesday that oil markets have reached the end of a substantial downturn.
He remarked, "Market forces are clearly working after a testing period of sub-$30 oil prices ... oil demand is expanding at a healthy rate despite slower global growth."
Al-Falih's message that fundamentals are improving and supply and demand is rebalancing came on the heels of his accompanying comment that non-OPEC members should participate in the proposed production cut loosely agreed upon by the cartel.
The optimistic energy minister even had good words for "unconventional" (ie: U.S. shale) producers: "I am happy to see more rigs coming back," he said, pointing out that they play a vital role in helping to meet global demand growth.
Barry Dawes, executive chairman of Martin Place Securities, agrees that the oil market is fundamentally recovering: he told CNBC that as a result, "I expect we'll see about $60 by the end of the year, taking into account seasonal impacts tying in with I guess a different attitude from OPEC."
Relying on recent numbers-crunching produced by the cartel, Dawes went on to note that demand forecast estimates for 2016 recently increased and supply numbers again decreased, "so the market is getting closer and closer to rebalance, and I think the underlying demand around the world is positive."
A slightly more conservative forecast comes from Adam Sieminski, administrator of the U.S. Energy Information Administration (IEA): he told Bloomberg that prices "should be above $50 next year, and they could keep going up: we can get into the upper $50s by the end of 2017."
Sieminski added that the lack of capital investment in the last year or two in the U.S. and globally "could be a problem five years from now: that could lead to a period where supplies are constrained, and that could push prices up."
Interestingly, the IEA last month released a report stating that global demand is slowing at a faster pace than predicted, and that momentum in 2017 will ease to 1.2 million barrels per day (bpd) compared to 1.3 million bpd for 2016 – which itself was a downgrade of 0.1 million bpd on the IEA's previous forecast due to "a more pronounced 3Q16 slowdown."
As always, forecasts are always open to criticism, and Dawes draws upon OPEC monthly reports that many experts have complained are incomplete, inaccurate, and skewed.
As for the IEA, Philip Verleger, president of PKVerleger, recently told Bloomberg television that oil producers "got demand wrong because the Energy Information Agency until July told everyone demand was growing at 4 percent, and finally they revised their number to 2 percent."
