Oil glut to last un­til mid-2017, says IEA

The Myanmar Times - - International Business -

A MAS­SIVE oil glut may weigh on world markets deep into next year un­less the OPEC pro­ducer car­tel makes good on its prom­ise to cut out­put, the In­ter­na­tional En­ergy Agency (IEA) said yes­ter­day.

The oil price has re­cov­ered steadily since OPEC said last month that it would re­duce pro­duc­tion, with de­tails to be ham­mered out at the car­tel’s Novem­ber meet­ing, and such a deal would “speed up the process” of work­ing off global oil in­ven­to­ries, the IEA said in its monthly re­port.

“Even with ten­ta­tive signs that bulging in­ven­to­ries are start­ing to de­cline, our sup­ply-de­mand out­look sug­gests that the mar­ket – if left to its own de­vices – may re­main in over­sup­ply through the first half of next year,” the IEA said.

“If OPEC sticks to its new tar­get, the mar­ket’s re­bal­anc­ing could come faster,” it said.

Ini­tially greeted with scep­ti­cism among an­a­lysts, OPEC’s agree­ment to cut out­put has gained trac­tion in the oil mar­ket, with the IEA not­ing that the oil price has risen by 15 per­cent since the car­tel’s an­nounce­ment on Septem­ber 28.

Oil prices rose to their high­est level in sev­eral months after Rus­sian Pres­i­dent Vladimir Putin said on Oc­to­ber 10 that his coun­try, not a mem­ber of the car­tel, was ready to align with OPEC’s push to limit oil out­put.

“The waiting game is over,” the IEA said. “OPEC has ef­fec­tively aban­doned its free mar­ket pol­icy set in train nearly two years ago.”

Saudi Ara­bia has said it was “not un­think­able” that the price of crude oil could surge to US$60 a bar­rel by the end of the year but warned against dras­tic pro­duc­tion cuts that might shock markets.

Speak­ing at the World En­ergy Congress in Is­tan­bul, Saudi En­ergy Min­is­ter Khalid Al-Falih said what­ever the oil price the king­dom was in good shape to im­ple­ment its re­form vi­sion to trans­form the struc­ture of its crude-based econ­omy by 2030.

For months pres­sured by con­cerns of slack de­mand amid a global eco­nomic slow­down at a time of a glut in sup­ply, US oil rose above $50 a bar­rel in New York last week for the first time since June.

This came after Saudi Ara­bia agreed to a sur­prise out­put cut of oil car­tel OPEC, the first in eight years.

“We are see­ing the con­ver­gence of sup­ply and de­mand,” said Mr AlFalih. “It is not un­think­able we could see $60 [a bar­rel] by the year end.

“But my eyes are not on the price but on sup­ply and de­mand.”

He added: “OPEC should make sure not to crimp too tightly and cre­ate a shock to the mar­ket. We do not want to shock the markets into a process that could be harm­ful.”

The min­is­ter ad­mit­ted that the king­dom had be­come “a lit­tle fat around the belly, a bit com­pla­cent” dur­ing the era of high oil prices but was now fully com­mit­ted to its eco­nomic re­form pro­gram set out by Prince Mo­ham­mad bin Sal­man.

“We will be pre­pared to deal with what­ever price emerges,” he said.

The min­is­ter said he be­lieved that de­mand for oil would peak but “if it does hap­pen we will be ready for it”.

“The [2030] vi­sion will lead to a stronger and more ro­bust Saudi Ara­bia,” he said, not­ing this in­cludes the planned IPO of a por­tion of state oil gi­ant Saudi Aramco, the big­gest such of­fer­ing in his­tory.

The World En­ergy Congress in Is­tan­bul brought to­gether ma­jor play­ers, in­clud­ing Turk­ish Pres­i­dent Re­cep Tayyip Er­do­gan and his Rus­sian and Venezue­lan coun­ter­parts Mr Putin and Ni­co­las Maduro, to dis­cuss a trans­for­ma­tion of the sec­tor. –

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