EMEA News
IEA Sees Oil Glut Clear in 3 Months as Saudis Push for $80/bbl Oil
The notion that the Organization of the Petroleum Exporting Countries' (OPEC) crude cutback initiative may have brought the global market closer to rebalance but failed to generate a price rally that would please producers was reinforced on Tuesday by Reuters, which reported that "people who have spoken" to officials in Saudi Arabia say Riyadh is aiming to get crude close to $80 per barrel.
The reason for the push is to support the valuation of state energy giant Aramco before an initial public offering.
Reuters noted that both Saudi crown prince Mohammed bin Salman and Khalid Al-Falih, energy minister for the kingdom, have indicated their desire to boost prices, with the former recently telling Time magazine that "We believe oil prices will get higher in this year and also get higher in 2019, so we are trying to pick the right time."
Reuters went on to state that "While there's little indication the Saudis are prepared to deepen their oil cuts to achieve $80, at the very least the aspiration suggests they'll keep with the current measures until the price goal is closer."
The news agency added that "Riyadh is counting on declining Venezuelan oil production, the likely imposition of new U.S. sanctions on Iran, and continued demand growth to absorb U.S. shale production"; it also pointed out that the most important thing for the kingdom to do is "keep Russia supporting the current OPEC and non-OPEC production cuts."
The million dollar question, of course, is whether the $80 level can be reached and to what extent OPEC - which is struggling with everything from members eager to pump full out (which would cause a price decline) to considering different ways to calculate inventory rates - can play a role in this massive price hike.
When asked his opinion of suggestions that OPEC may adopt a seven year average instead of the current five year average to better calculate the state of global inventories relative to demand, Neil Atkinson, head of the oil industry and markets division of the International Energy Agency, told Bloomberg television that "as time has gone by and stocks have started to fall, it's becoming quite clear that the five year average is within sight, and it may only be another two or three months or so before the stocks actually reach that five year average;
"So whether OPEC decides that this is enough and they have achieved what they originally set out to do in their declaration, or they move to another target, is obviously a decision for them; but as a matter of record, if they were to move to a 10 year average number there would still be some way to go before stocks were to fall to that level."
When asked if OPEC's consideration of changing the averages is an indication the cartel is unhappy that their current efforts haven't produced a bigger crude rally, Atkinson replied, "there was no explicit price target in the original [cutback] agreement.....I think at the moment producers are very happy that prices do appear to have settled in the low $60s for the time being," but he added that "it's not as if everything's been finished and it's mission accomplished; there are still various moving parts out there."
All indications are that Saudi Arabia - OPEC's de facto leader - will do whatever it can to maintain the current cutbacks for as long as possible: last month al-Falih complained publicly that "so far the prices we've seen have not brought back the investments we need," but instead of discussing how higher prices would benefit Aramco, he said "we're still $1 trillion in investment levels below where we were before the downturn in oil prices, so that tells me that the pricing signals that have come out of the recovery have not been sufficient."
