Oil prices need to return to $100; short-term growth unlikely

Baku, Azerbaijan, April 21 By Aygun Badalova - Trend: While there is a need for oil prices to return to nearer $100 a barrel in order to make oil projects economic, director of Downstream Consulting at IHS Markit Spencer Welch believe no significant growth will occur in the short term period. “In order to make all the oil projects required to meet global demand for oil, economic, oil prices need to return to nearer $100 a barrel,” Welch told Trend July 21. “If prices were to remain near $50 a barrel, there would be shortage of oil by 2025 (as the necessary projects would not progress), and a shortage of oil would push up prices, so prices can’t remain at the current level indefinitely,” he added. Earlier Saudi Energy Minister Khaled al-Falih said that crude prices of $50 per barrel were not enough to sustain investment in the global oil sector, adding that a fair price would be somewhere between $50-$100. That statement gave little hope to the oil markets that the kingdom could change its long time pursuited oil strategy to support the prices. However, Welch believes that this is unlikely, and Saudi Arabia will likely to maintain its current strategy of retaining, or even increasing market share, by sustaining, or boosting oil production. “Saudi Arabia started this policy in late 2014 and it is working. They have maintained market share, higher cost producers are reducing production and price is recovering, but it is taking time, longer than most, probably also including Saudi Arabia, expected,” Welch said. OPEC’s latest estimates showed that Saudi Arabia produced 10.308 million barrels per day of oil in June compared to 10.242 million barrels per day in May. The total OPEC oil production in June increased by 264,100 barrels per day to average 32.858 million barrels per day. According to the latest data of Joint Organizations Data Initiative (JODI), According to the latest report from Joint Organizations Data Initiative (JODI), Saudi Arabia’s exports of 7.295 million barrels per day in May were 149,000 barrels per day lower than 7.444 million barrels per day in April. The drop in exports occurred despite a rise in Saudi Arabia’s oil production to 10.27 million barrels per day in May versus 10.26 million barrels per day a month earlier. Total Saudi crude supply - comprising exports, direct crude burn at home and refinery intake - fell to 10.324 million barrels per day in May, the lowest level this year so far, compared with 10.455 million barrels per day in April and 10.512 million barrels per day in March. Touching upon the perspectives for the oil prices growth, Welch said that the oil market is back into supply and demand balance now, and the inittial rebound has already happened, from below $30 a barrel in January to around $50 a barrel since end-May. He said that IHS Markit expects prices to remain near $50 a barrel through to the end of 2016, unless there is a significant oil supply disruption, which would push prices up. In 2017 the company expects prices to increase a little, as global demand increases, with an average price in 2017 of 57 a barrel. Crude oil prices rose July 20 after new data showed US refiners running their operations far harder than expected, thwarting expectations that a glut of fuel products would start to damp refiners’ demand for crude. WTI crude for August delivery gained 0.6 percent, to $44.94 a barrel on the New York Mercantile Exchange, according to the Wall Street Journal. September contract gained 0.7 percent, to $45.75 a barrel. Brent crude gained 1.1 percent, to $47.17 a barrel on ICE Futures Europe.