Oil prices rise as supply glut diminishes
OPEC ministers gathering in Vienna for the group’s biannual meeting said the oil market was moving in the right direction as a supply glut dissipated.
While Saudi Arabia – the architect of oil cartel Opec’s current policy – remained silent, ministers from the UAE and Nigeria signaled that the strategy of letting low prices eradicate surplus output was working. Some of the world’s biggest oil traders said accelerating demand was also helping to rebalance the market.
“From the beginning of the year until now, the market has been correcting itself upward,” UAE oil minister Suhail Al Mazrouei told reporters in Vienna this week. “The market will fix itself to a price that is fair to the consumers and to the producers.”
Those comments, echoed by his Nigerian counterpart, suggest renewed optimism among producers after oil prices rose more than 85 percent in New York since touching a 12-year low in February. There were still signs of division in the group, with Venezuelan energy minister Eulogio Del Pino saying yesterday the price recovery had more to do with unexpected supply disruptions than a successful Opec strategy.
Forecasters including the International Energy Agency (IEA) and Goldman Sachs Group said the crude glut was finally dwindling as the Saudi approach of squeezing highcost suppliers – opposed by most Opec members when it was unveiled in late 2014 – finally paid off. The group is unlikely to change direction this week, according to analysts surveyed by Bloomberg.
“I think the market trends are better now” and the sense of urgency that spurred producers to mull an agreement to freeze production in April had dissipated, Emmanuel Ibe Kachikwu, Nigeria’s minister of state for petroleum resources, told reporters in Vienna.
While prices were moving “in the right direction, I think it needs more acceleration of the pace”, he said.
While Venezuela’s Del Pino lamented the failure of the freeze agreement, which Saudi Arabia blocked because Iran would not participate, he said unplanned disruptions in Canada, Nigeria and Kuwait had effectively capped crude production.
“If you take into account what happened in the last three or four months”, there had been a “de facto” freeze, Del Pino said yesterday. More than 3 million barrels of daily production were out of the market, he said.
After two and a half years of oversupply, oil traders also see signs supply and demand are getting close to returning to being in balance.
“The rebalancing is happening a bit faster than anticipated because of the disruptions,” Marco Dunand, the head of Geneva-based trading house Mercuria Energy Group, said in an interview.
“Demand is also stronger than expected” in countries from India and the US, he said.
The IEA forecasts oil demand will increase this year by 1.2 million barrels a day, while Dunand said growth was likely to top 1.5 million, perhaps rising as high as 1.8 million.
Brent and West Texas intermediate crudes, respectively, the international and US oil benchmarks, rose last week above $50 (R783) a barrel for the first time in six months. Wall Street banks have lifted their oil price forecasts, with Goldman Sachs now saying oil prices could hover between $50 and $60 a barrel in the second half of the year.
“We have around 360 million barrels of surplus inventories in industrialised countries that need to be diminished before prices head markedly above $50 a barrel,” said David Fyfe, the head of research at oil trading house Gunvor Group in Geneva.