Oil glut to last until mid-2017, says IEA
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  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. –