HE Ali Ibrahim Al Naimi, Minister of Petroleum & Mineral Resources, Kingdom of Saudi Arabia with Dr. Theodore Theodoropoulos, CEO of QCIP (LNG Marketing) discussing, recently in Doha, the oil prices retreat on oversupply concerns & Saudi Aramco discovery of the new fields
At the same meeting, HE Abdullah bin Hamad al-Attiyah, Qatar’s Former Deputy Premier and Minister of Energy and Industry said the surge in the global supply of shale oil has curbed Opec’s ability to balance crude markets.The Organisation of Petroleum Exporting Countries was able to balance the market in the past because output from shale oil deposits in the US and other non-Opec nations was insignificant, al-Attiyah told reporters at an industry event in Doha. “Opec can’t act as swing producer because it will lose market share,” he said on Wednesday, referring to the group’s traditional practice of varying output to manage crude prices. Al-Attiyah was Energy Minister of Qatar, an Opec member, from 1992 to 2011.
Crude prices tumbled more than 75% from their 2014 peak due to a global glut fed partly by production at shale deposits in the US. Opec, which pumps about 40% of the world’s oil, meets in Vienna on June 2 to assess its output policy. The group is unlikely to set a production target as it sticks with Saudi Arabia’s strategy of squeezing out rivals such as higher-cost shale drillers, according to all but one of 27 analysts surveyed by Bloomberg.
“Frankly, I don’t expect anything from the next Opec meeting because, rightly, Opec decided not to play against the market,” Claude Mandil, a former executive director of the International Energy Agency, said at the same event. “Market forces are too strong now, and you can’t play against those forces when they are strong.”
Crude has surged more than 80% from a 12-year low earlier this year on signs the global oversupply will ease amid declining output in Nigeria and non-Opec countries including the US.
“The issue now for Opec members is how to diversify your economy from oil and gas,” Mandil told reporters in the Qatari capital. Mandil headed the IEA, a watchdog agency for the world’s most industrialised countries, from 2003 to 2007.Prices were also pressured by a strong greenback that was buoyed by generally positive US economic data amid growing expectations of a near-term rate hike. Brent fell 36 cents, or 0.7 percent, to $49.23 by 0602 GMT on Friday, retreating further from the previous session’s $50.51 peak, its highest since early November. U.S. crude dropped 35 cents, or 0.7 percent, to $49.13 a barrel after touching $50.21 on Thursday, it’s highest since early October.
Oil pushed through $50 for the first time in around seven months on Thursday after supply disruptions from Canadian wildfires and attacks in Libya and West Africa helped cut daily output by 4 million barrels, but eased to close down on the day.
“Shale is the new shock absorber to the market,” said Tony Nunan, oil risk manager at Tokyo’s Mitsubishi Corporation.
“There is a wide range of production costs. Shale’s total production costs are around $48-$50 a barrel – there will be producers who make money at $50,” Nunan said. Oil prices, which have risen nearly 90 percent from 12-year lows hit earlier this year, face pricing barriers to moving higher in the next three to five weeks, technical analysts said on Thursday, with Brent facing a significant hurdle at around $52 a barrel.
“In the next few months oil prices could stay in the high $40-$50 mark. We are entering the US driving period so seasonal demand might provide underlying support to oil prices,” said Yvanne Lai, senior analyst at National Australia Bank.
Investors were also awaiting the appearance of US Federal Reserve Chair Janet Yellen at an event later on Friday for further indications on when the Fed could raise interest rates.
A meeting of the oil producer’s cartel, the Organization of the Petroleum Exporting Countries on June 2 may give further direction to oil markets, Nunan said. “Most people feel the meeting will be neutral or bad,” he said, with a neutral outcome leading to no change in oil output, while moves by producers like Saudi Arabia to boost production, would be bad.
“The Fed meeting could be the bigger trigger. An increase in interest rates will mean a higher dollar, a higher dollar means more expensive crude which could trigger a commodities sell-off.” A raft of Fed officials have called for a normalisation of interest rates as the US economy and inflation rise, with the odds of a June hike now around 34 percent, compared with 4 percent last week, ANZ analysts said.
Sources: Reuters, QGN, BBC, Gulf Times, QGA, Caye Global News