EMEA News
Crude Gains Continue, but Analyst Warns Defending Market Share Will Remain Top Priority For Saudis
As oil continued to make gains on Friday on the strength of Saudi Arabia’s oil minister stating that the kingdom would consider participating in talks to stabilize the market, one expert warns that defending market share comes first for the Saudis.
Dan Yergin, vice chairman of HIS Markit, told CNBC’s Squawk Box that while the Saudis have greater incentive this time out to aid in a price recovery (due to the need to maximize the value of its IPO of state oil giant Saudi Aramco), “I think the pre-eminent thing is about maintaining market share."
He added that rival Iran nearing its long-sought pre-sanctions production output will also make forging a deal between the Saudis and other members of the Organization of the Petroleum Exporting Countries difficult when they congregate in late September.
Yergin also thinks that over the longer term, fulfilling demand, not low prices, will be the major concern of producing countries; he based this on the postponement of "big megaprojects" that take up to 7 years to complete.
He remarked, "You see postponements, delays and cancellations, so you're going to see a supply-demand balance that's going to be different over the next couple of years.
"The question now is of course struggling with price, but in three, four, five years, how are we going to meet 5 or 6 million barrels a day of new demand growth?"
But for the time being at least, the focus remains on prices, and on that score oil rose about 2 percent on Friday, achieving its biggest weekly gains in April; Brent crude futures settled 93 cents higher at $46.97 per barrel, and West Texas Intermediary settled up $1 at $44.49.
RBC Capital Markets analysts said in a research note, "Despite the recent bounce in prices, we continue to believe that the oil market remains in oversold territory.
"As such, the price path forward will likely remain choppy and non-linear since price moves can and will often be exacerbated in either direction."
In addition to doubting the veracity and viability of producing nations reaching an agreement in September, analysts are also unclear about exactly what the producers will discuss: Michael Wittner, global head of oil market research at Societe Generale, pointed out, "If you're talking freeze, it's not going to make a damn bit of difference for real crude supply: Russia is maxed out; Iraq is maxed out or close; Iran is maxed out or close to it, and the Saudis are out with a big number in July but that's seasonal, and they'll be coming down.
