The Organization of Petroleum Exporting Countries, which pumps about one third of the world’s oil supply, needs to cut production to sustain a rise in crude prices above $50 a barrel, according to the majority of respondents polled in a Gulf Intelligence GIQ Industry Survey.
OPEC and non-OPEC producers are scheduled to meet Sept. 28 in Algeria in a bid to reach a deal to boost prices by limiting oil production. In April, oil producers met in Qatar to discuss the proposal but failed to agree on a cap after Iran, which wants to boost exports after years of sanctions, refused to join in. OPEC last reduced supply in 2008 when the global economic crisis crippled demand.
It doesn’t matter if the world’s biggest oil producers agree to freeze output when they meet in Algiers later this week because they must slash supply to support a protracted price rally; this was the view of two-thirds of the 250 international energy executives operating across the Gulf who participated in the GIQ poll on Sept. 22nd. Meanwhile 20% of the survey respondents said crude oil prices will fall and test new cycle lows as they did earlier this year if OPEC and its non-OPEC peers fail to agree to at least cap production at current levels.
“This is the right time for action as all stakeholders are ready,” Dr. Falah Alamri, Director General, OPEC Governor, Iraq, said in reaction to the survey results. “In Doha in April some producers weren’t ready to participate as they were still chasing market share, but they are now. We have to do something as the lower price isn’t acceptable to anybody, not for producers or consumers — even developed economies are hurting from this,” he said.
Brent futures fell almost 4% on Friday to close at $45.89 a barrel, less than half the price two years ago. Crude oil rallied last month on speculation OPEC and Russia might announce an agreement in the Algerian capital, but prices have since retreated on doubts there will be any serious steps to reduce the world oil surplus.
The bad news is the IEA reported earlier this month that crude oil inventories stored in OECD countries have “smashed through” 3.1 billion barrels during the first half of this year, which amount to about 300 million barrels above the 5-year average. However, the good news is that BP reported that the market has reached a tipping point as stocks have started to draw down.
Still, the GIQ survey respondents were quite divided on how fast it would take for inventories to drawdown sufficiently so that they would no longer impose downward pressure on oil prices, with 36% saying it wouldn’t happen until 2018, while 32% of the Gulf industry executives polled were of the view that stocks would decline adequately by the end of 2017. That said, 57% of those polled shared the view that Brent crude oil would average in the $50s next year.
“The current oil markets are a little like a Bombay traffic jam with no policeman – chaos!” Dr. Fereidun Fesharaki, Founder & Chairman, Facts Global Energy, said after reviewing the results of the GIQ industry survey. “That policeman has been Saudi Arabia and that policeman is gone — we all need the policeman to come back but the Saudis will not do it on their own. They will have to have some level of support, if not full, from the rest of OPEC, and this is not possible for another year or year and a half until demand has kicked a lot of the excess volume out of the market,” he said.
GIQ is a unit of Gulf Intelligence – a UAE-based strategic communications consultancy that facilitates critical Knowledge Exchange and Networking between stakeholders operating along the South-South corridor, connecting Government Related Entities (GREs) in the Middle East and their International Partners trading across this New Silk-Road passageway.
Source: GIQ