Azernews.Az

By Aynur Karimova

Even as the oil price dwells at levels not seen since the peak of the financial crisis, many analysts and investors are repeating a new crude undersong: crude price will be lower for longer.

Oil prices have greatly disappointed the energy exporters since 2014, reaching their minimum at $40 per barrel on average recently against $112 per barrel fixed before.

Forecasts about the world crude price are becoming even more pessimistic, showing that it is set to stay below $60 per barrel through 2016 as the oil market struggles to recover from a supply glut.

Azerbaijan's Energy Ministry, however, believes that global oil prices cannot remain at a low level for a long time as a drop in oil prices affects negatively the exploration and production in the oil producing countries.

Minister Natig Aliyev said during a panel discussion titled “The future of energy, the future of global governance” within the framework of the IV Global Baku Forum in Baku on March 11 that oil prices will increase in the future.

While cheap oil is a boon for consumers and businesses, it brings more pain for oil producers. In this regard, Aliyev believes that both excessively low and high price is bad for world economy.

"We want the price, which would be beneficial to all parties," Aliyev added.

Earlier, Energy Ministry predicted crude prices to rise and stabilize on the global oil markets from 2017.

Oil was sold at above $100 per barrel in June 2014, but a combination of oversupply of oil and weaker demand sent prices sharply lower in the second half of the year.

The oversupply was mainly due to the export of U.S. shale oil to the market, while demand fell because of a slowdown in economic growth in China and Europe.

Oil continued its descent in 2015 as well, by falling toward $30 a barrel after China, the world's second largest economy and second largest oil consumer, devalued its national currency, the yuan.

In early 2016, at a time when the world oil market already is grappling with a global supply glut, Iran said it is ready to increase exports by 500,000 barrels per day.

Iran's such a decision came after the IAEA said Iran has complied with a deal designed to prevent it developing nuclear weapons and it was decided to lift the sanctions against Iran on January 16, 2016.

Iran, with about 38 million barrels of oil in floating reserves ready to enter the market, hopes to eventually increase output by almost 1.5 million barrels per day.

Meanwhile, OPEC told Trend on March 10 that its oil basket’s price stood at $35.23 per barrel on March 10, or $0.18 more than on March 9.

World oil prices increase on March 10 after a decline on the previous day, continuing to win back the mixed data on stocks of raw materials in the U.S.

The price for May futures of the North Sea Brent oil mix increased by 1.5 percent – up to $40.66 per barrel on March 11 as of 12:43 (UTC/GMT +4 hours), while the price of April futures for WTI oil increased by 1.96 percent up to $38.58 per barrel.

Earlier, EIA reported that Brent crude oil prices will average $34 a barrel in 2016 and $40 a barrel in 2017, and WTI crude oil prices are expected to average the same as Brent in 2016 and 2017.

"The lower forecast prices reflect oil production that has been more resilient than expected in a low-price environment and lower expectations for forecast oil demand growth," EIA said.

The U.S. JP Morgan bank expects Brent and WTI prices to average $32.75 a barrel and $32 a barrel, respectively, in 2016, while in 2017, the bank expects prices to increase further as market rebalancing continues. Brent and WTI are expected to average $43.25 a barrel next year.

Meanwhile, Fitch Ratings has lowered the oil and natural gas price assumptions, expecting that the prices are increasingly unlikely to recover in 2016.

Fitch expects Brent and WTI prices to average $35 a barrel in 2016, compared to $45 a barrel previously forecasted.

"The reduction is due to a combination of stock build-up over the mild winter, higher-than-expected OPEC production in January and increasing evidence that global economic growth for the year will be weaker than we previously forecast," Fitch said in a report. “This suggests still there will be a supply surplus in the second half of 2016, albeit reduced from current levels, and that markets will probably only reach a balance in 2017. Even then, very high inventories will limit price increases."

Russian Gazprom believes that an oil price in the range of $50-$60 per barrel would be the best price for 2016.

“No one can give an accurate forecast for oil prices today,” Viktor Zubkov, the Chairman of Gazprom’s Board of Directors, told Trend on March 10. “Oil prices have increased up to $40. If the prices stand at $50 and vary at $50 to $60, I think this would be the optimal price for 2016.”

“Everything depends on the development of different countries’ economies in different regions of the world, namely China and Europe,” he added. “Iran is also entering the market with its oil reserves.”

He believes that the OPEC meeting, to be held with oil producing countries in March to discuss freezing oil production and, perhaps, reducing its volumes, can contribute to increasing the oil prices to $50 to $60 per barrel.

Meanwhile, one thing is clear that the oil prices will not reach or exceed $100 per barrel.

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Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova

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