Crude prices rise reversing earlier losses
KUALA LUMPUR/LONDON: Saudi Arabia’s Energy Minister Khalid Al-Falih said on Monday that oil markets were rebalancing after years of oversupply, but that he still expected a deal led by the Organization of the Petroleum Exporting Countries (OPEC) to cut output during the first half of the year to be extended to all of 2017.
OPEC and other producers, including Russia, pledged to cut output by 1.8 million barrels per day (bpd) during the first half of the year to prop up the market. But global inventories remain high, pulling crude oil prices back below $50 per barrel and putting pressure on OPEC to extend the cuts to the rest of the year.
“Based on consultations that I’ve had with participating members, I am confident the agreement will be extended into the second half of the year and possibly beyond,” said Al-Falih, during an industry event in Kuala Lumpur.
Al-Falih said recent price falls had been caused by the low demand season and refinery maintenance, as well as by nonOPEC production growth, especially in the US. “I believe the worst is now behind us with multiple leading indicators showing that supply-demand balances are in deficit and the market is moving toward rebalancing,” he said.
“We should expect healthier markets going forward.”
He also expected global oil demand to grow at a rate close to last year. In China, oil demand growth should match last year’s due to a robust transport sector, while India should record healthy growth, he said.
The chairman of energy consultancy FGE, Fereidun Fesharaki, said: “They (OPEC) are looking at (extending) for nine to 12 months. Six months is not enough as we will still be well above five years average of stocks.”
Almost all expected oil demand growth over the next 25 years is likely to originate from Asia as the region’s population grows, with countries such as Vietnam and the Philippines rising to become included in the top 20 global economies, Falih said.
Asia will also account for nearly two-thirds of global gas demand by that time, he said.
Global investments in exploration and production have also fallen behind, potentially creating a big supply-demand gap in the next few years, he said.
“Conservative estimates predict that we will need to offset 20 million bpd in combined demand growth and natural decline over the next five years,” Al-Falih said.
“That is why I fear ... we are heading into a future of supply-demand imbalances,” he said.
Al-Falih shrugged off talks that the rise of alternative energy could reduce fossil fuel consumption, saying renewables still face hurdles such as affordability. He does not expect oil demand to peak anytime soon.
Oil price Oil prices rose on Monday, reversing earlier losses after sources said OPEC and its partners were considering extending their existing supply deal possibly into next year, which helped offset the bearish impact of more increases in US crude output.
Brent crude was up 34 cents at $49.44 a barrel at 1410 GMT, having recovered from a session low of $48.65. US light crude was up 35 cents at $46.57 a barrel, up from an intraday low of $45.83.