Oil prices likely fall amid global oil glut

4 May 2016 12:26 (UTC+04:00)

By Fatma Babayeva

The oversupply of oil in the global market will continue in the near future thus leaving grounds for forecasts on further decrease in crude prices.

The European Commission predicts the oil prices to slowdown in 2016-2017.

Oil prices will most likely remain low rather than high against the background of high-volume overproduction in the market, Robert Cutler, senior researcher at Carleton University and a consultant for the international energy said to Trend news agency on May 3.

Cutler said it is hard to imagine that the balance in the global oil market will be fully restored by the end of the current year.

Oil prices may fluctuate and grow which has been the case after the Doha meeting of oil producers, he stressed.

However, there are many factors causing the oil supply overhang in the market, he stressed by adding particular role of the U.S. in this regard.

Shale industry of the U.S. continues to improve its technologies and cost-efficiency in a way that will make greater production possible at low prices, said Cutler by emphasizing that it will support low oil prices in its turn, even if the signs of balance recovery appear in the market.

In addition, analysts of the U.K. economic research and consulting company Capital Economics also said in its recent report that the surge in the U.S. shale production may delay the rebalancing of the world oil market.

The company report further added that a premature rebound in prices could cause U.S. shale production to ramp up again which will delay the rebalancing in the market in its turn.
The analysts of Capital Economics expect to see some temporary pull-backs in oil prices over the remainder of the year before the recovery resumes in 2017.

At present, an increase is being observed in oil prices on May 3 against the background of an increase in OPEC’s oil production.

The price for the July futures of the North Sea Brent crude increased by 0.94 percent to $46.26 per barrel, while the price for the June futures of the WTI oil rose by 1.03 percent to $45.24 per barrel on May 3.

OPEC’s oil production increased by 170,000 barrels to 32.64 million barrels per day in April compared to March, according to the data obtained by the Reuters.

Nevertheless, the quota on oil output officially set by the cartel amounts to 30 million barrels per day.

The price of OPEC’s oil basket stood at $42.47 per barrel on May 2.

Earlier, the last meeting of oil producing countries that held in Doha on April 17 ended without any agreement on freezing of oil production at the level of January 2016.

Mainly, Iran and Libya were blamed for the failure of the meeting which they they decided not to attend. It is worth mentioning that the next meeting of OPEC member-countries is due in June 2016.

Cutler thinks it is unlikely that an agreement on freezing oil production will be reached in the near future. He believes that the main obstacle will again be Iran who refused to take part in freezing oil production in the previous meeting.

In addition, Spencer Welch, director of IHS downstream energy consulting company also said that he did not believe that the next meeting of OPEC to have fruitful results either. Meanwhile, the oil market will begin to balance itself during the second half of this year. Iran will still try to increase oil production and therefore is not going to agree to freeze its output. Furthermore, Saudi Arabia is unlikely to agree to freeze its production without Iran.

Recently, the European Commission also revealed its forecasts for the oil prices. According to the spring report of the commission, the Brent average price will further fall this year to $41.1 per barrel in 2016 compared to $53.4 per barrel in 2015.

The EC forecasts average oil price to be $45.9 per barrel in 2017.

Output losses in some OPEC members were only partly offset by rising Iranian production, the report read.

The EC believes that the negative impact of the Doha meeting on prices was outweighed by supply outages in Kuwait, Nigeria and Venezuela.

High levels of oil stocks and concerns over economic growth in emerging markets are likely to keep a cap on price pressures, the report added.

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Fatma Babayeva is AzerNews’ staff journalist, follow her on Twitter: @Fatma_Babayeva

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