Expert: OPEC secretary general’s statements overly optimistic
By Elena Kosolapova
The statements by Secretary General of OPEC Abdalla Salem el-Badri
about forthcoming stabilization of oil prices are overly
optimistic, Arthur Berman, well-known US geological consultant told
Trend.
Earlier, Abdalla Salem el-Badri said the oil prices will get no
lower, as demand is surging and production going down.
“Prices will stabilize in 2016. We expect stability on the oil
market over the long term.”
“His comments focus on demand growth that I do not see in the data
so far except possibly in the United States,” said Berman.
The expert added that the latest Oil Market Report of the
International Energy Agency (IEA) sees decreased demand growth on
the horizon.
IEA July 2015 Oil Market Report said that world oil demand growth
appears to have peaked in Q1 2015 at 1.8 million barrels per day
and will continue to ease throughout the rest of this year and into
next, as temporary support fades, according to Berman.
Low oil price alone will not result in meaningful oil demand growth
without sound economic growth, the expert added.
“I believe that el-Badri's optimism comes from OPEC's view that
global economic growth in 2016 will be significantly higher than in
2015 which, by OPEC's own assessment, is lower than in their
previous forecasts,” said Berman.
“I see many disturbing signals, however, for economic growth
particularly in China, Japan and Europe including Russia,” he
added.
The US expert said that el-Badri does not address the principal
problem causing low oil prices, namely over-production.
“Much of the world's over-production is currently coming from
OPEC,” said Berman. “So, perhaps he [el-Badri] foresees a
coordinated OPEC and Russia production cut that might bring supply
into better balance with demand some time in 2016 or even in late
2015.”
He said this makes some sense because Saudi Arabia is spending its
capital reserve accounts quickly and Russia's economic contraction
is serious, and both problems are largely because of low oil
prices.
“I don't know what OPEC means by a stable oil price but my guess is
that approximately $65 for Brent anWTId $60 for WTI is about right
to promote its objectives of regaining market share, getting some
relief from negative cash flow and, at the same time, keeping
prices below the threshold for expensive competition from deep
water oil, oil sands and all but the best tight oil production,”
said Berman.
The US expert said that OPEC has considerable control over oil
prices despite the popular misconception that they no longer
do.
A big part of the reason for persistent low oil prices today is
that in June 2015, OPEC produced about 1.9 million barrels of oil
per day more than in January 2014, according to Berman.
“That is almost exactly the amount of the production surplus in the
world today.”
If OPEC and Russia cut 2 million barrels per day, oil prices would
increase greatly because that would bring supply and demand largely
into balance, he said.
“If the current situation of a global production surplus and weak
oil demand growth continues, it would not surprise me if Brent oil
prices dropped below $50 per barrel again as they did in January,”
said Berman.
Some people believe that they could fall even lower and they could
if the overall world economic outlook worsens, according to the
geological consultant.
On the other hand, prices could rise because of political conflicts
that interrupt the supply of oil but no one can predict that, he
added.
Furthermore, Berman said that in the long term, oil prices will
rise because global demand will continue to increase even if the
rate of growth is slower than in the past.
“That is what el-Badri is really talking about,” he said.
Also, even Saudi Arabia needs quite a bit more than $65 per barrel
to balance their budget, he said.
“I doubt that prices will go back to $100 per barrel for a few
years nor do I think OPEC will allow that until they have achieved
their goals of increasing both their market share and overall oil
demand growth in the world,” Berman added.
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