We may Not See Oil at $100 Again

The Economic Times - - Finance & Commodities -

Nick Cun­ning­ham

Recog­nis­ingth­at­some­thing­had to be done to halt the lat­est crash in oil prices, Saudi Ara­bia’s en­ergy min­is­ter Khalid al-Falih went pub­lic with his sup­port not on­ly­foranex­ten­sionof theOpec cuts for an­other six months, but he also dan­gled the pos­si­bil­ity of an ex­ten­sion into next year. At the same time he waived away the signs that the mar­ket is still woe­fully over­sup­plied, acknowledging the larger-than-ex­pected re­bound in US shale, but still not­ing that the fun­da­men­tals are im­prov­ing.

Up un­til now the de­ci­sion was whether or not to ex­tend for six months. Now, with a six-month ex­ten­sion look­ing as­sured, there are ques­tions whether even that will be enough.

Many of the top en­ergy an­a­lysts tend to agree with al-Falih’s near-term as­sess­ment – that the re­cent sell­off might have gone a lit­tle too far due to some techni- cal trad­ing par­tic­u­lars rather than the reemer­gence of a sup­ply glut. The oil mar­ket, how­ever plod­dingly, con­tin­ues to ad­just to­wards some sort of bal­ance.

But even as he agrees with alFalih’s char­ac­ter­i­sa­tion of what’s tak­ing place right now, Ed Morse of Citi dis­agrees very much with the min­is­ter’s medium-term as­sess­ment. That is, Morse ar­gues there will not be a sup­ply short­age at the end of the decade. Ul­ti­mately, Citi does not fore­see the price spike to­wards the end of the decade and into the 2020s that the IEA has warned about.

The in­dus­try has struc­turally re­duced costs and can grow pro­duc­tion even with oil trad­ing at to­day’s prices. That could ul­ti­mately mean that prices never go back to $100 per bar­rel. – BI

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