Arab Opec sources see oil back above $70
Arab Opec producers expect global oil prices to rebound to between $70 and $80 a barrel by the end of next year as a global economic recovery revives demand, Opec delegates said this week in the first indication of where the group expects oil markets to stabilise in the medium term.
The delegates, some of which are from core Gulf Opec producing countries, said they may not see - and some may not even welcome now - a return to $100 any time soon. Once deemed a “fair” price by many major producers, $100 a barrel crude is encouraging too much new production from high cost producers outside the exporting group, some sources say.
But they believe that once the breakneck growth of high cost producers such as US shale patch slows and lower prices begin to stimulate demand, oil prices could begin finding a new equilibrium by the end of 2015 – even in the absence of any production cuts by Opec, something that has been repeatedly ruled out.
"The general thinking is that prices can't collapse, prices can touch $60 or a bit lower for some months then come back to an acceptable level which is $80 a barrel, but probably after eight months to a year," one Gulf oil source told Reuters.
A separate Gulf Opec source said: "We have to wait and see. We don't see 100 dollars for next year, unless there is a sudden supply disruption. But average of 70-80 dollars for next year – yes.”
The comments are among the first to indicate how big producers see oil markets playing out next year, after the current slump that has almost halved prices since June. Global benchmark Brent closed at around $60 a barrel on Monday.
Their internal view on the market outlook will provide welcome insight to oil company executives, analysts and traders, who were caught out by what was seen by some as a shift in Saudi policy two months ago and have struggled since then to understand how and when the market will find its feet.
For the past several months, Saudi officials have been making clear that the Kingdom's oft-repeated mantra that $100 a barrel crude is a “fair” price for crude had been set aside, at least for the foreseeable future. At the weekend, Saudi Oil Minister Ali al-Naimi was blunt when asked if the world would ever again see triple-digit oil prices: “We may not.”
Saudi Arabia, the world's biggest exporter – and its close Gulf allies within the Organisation of the Petroleum Exporting Countries (Opec) – say it's time for others, whether that is countries like major exporter Russia or US shale drillers, to slow down; Opec can no longer slash output, ceding market share, to spare them a downturn.
As Naimi told the Middle East Economic Survey (MEES) in an interview this weekend: “It is not in the interest of Opec producers to cut their production, whatever the price is.”
Without Opec to defend prices, oil entered a free-fall, but most of Opec's members are holding fast.
At this point, intervening in the market would simply invite new rivals to carry on pumping crude, eroding Opec's market share without any guarantee of a sustained price recovery, another Arab oil source told Reuters on the sidelines of a meeting in Abu Dhabi of the Organisation of the Arab Petroleum Exporting Countries (OAPEC).
"Every time prices fall, we would be asked to cut," the source said.
The second Gulf Opec source reiterated that Opec would not cut alone. Non- Opec producers such as Russia, Mexico, Kazakhstan and "anyone producing more than one million barrels per day" should also cut or at least freeze their output if they wanted a stable market and better prices, the Gulf Opec source said.