Stating that OPEC has not cut production to keep oil prices supplied even though rates have hit 11-year low of less than $35 per barrel, he said fair price means a rate where OPEC nations have a decent income. “This will not continue”, said Badri, who was speaking at the first OPEC-India Energy dialog in New Delhi.
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This seasonal weakness is adding to structural oversupply as producers pump out anywhere between 0.5 million and 2 million barrels of crude every day in excess of demand, helping pull down prices by two-thirds since mid-2014.
A weak United States dollars, some improvements in the EM and signs of tightening market conditions, led by lower non-OPEC production, should help in rising oil prices to above USD50 per barrel.
Oil is trading close to levels last seen during the global financial crisis this week after the Organization of Petroleum Exporting Countries effectively abandoned output limits in an effort to defend market share.
Another risk facing crude markets was the potential for oil exchange-traded-funds to unwind their assets under management, which could spark another sell-off, Morse said. On Monday it rose for the first time in seven days, adding 1.94 percent to $36.31, after also briefly flirting with 11-year lows.
An anticipated USA interest rate hike on Wednesday could put further pressure on oil demand.
But these sources also expect global inventories to start declining by the second half of 2016, supporting prices more towards the year-end.
“At present, only contracts due in 2018 would generate a sufficient WTI discount to make it attractive to export USA crude oil”, analysts at the bank said in a note to clients.
With Opec pumping strongly and U.S. drillers producing large amounts of crude, the Brent/WTI premium has shrunk 28% in one week to $1.95 per barrel.
Although demand growth rose to a five-year high of almost 2 million barrels per day, strong OPEC production and resilient non-OPEC supply have pushed global crude stockpiles up to a record 3 billion barrels last month.
While OPEC failed to agree on a debt ceiling during a high-profile meeting on December 4, Badri believes non-OPEC oil supplies are set to fall by 400,000 barrels per day in 2016, subsequently raising global prices.
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Iran has actually pledged to boost production as sanctions are being lifted.
