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Sat, 08/01/2015 - 10:48
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OPEC's statement overly optimistic, says expert

Baku, Azerbaijan, July 31 By Elena Kosolapova – Trend: 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 and $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. --- Follow the author on Twitter:@E_Kosolapova Follow us on Twitter @TRENDNewsAgency

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