Oil prices rose in early Asian trade on Tuesday after the head of OPEC forecast a more balanced market next year and the USA energy department said domestic production is likely to fall for an eight consecutive month. Two other OPEC officials on Monday made upbeat comments about the 2016 outlook, suggesting big changes are unlikely.
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Benchmark U.S. crude futures slipped to a two-week low at US$43.55 (RM188.18) a barrel and were trading down over half a dollar from their last close at US$43.68. This comes the day after the United Arab Emirates (UAE) Energy Minister Suhail Mohamed al-Mazrouei is saying the UAE plans to double down in the OPEC price war by raising production in the next few years to 3.5 million barrels a day, up from 2.9 million barrels per day.
The Paris-based watchdog’s main scenario is for prices to gradually recover to around $80 a barrel by 2020, assuming a pick up in global economic growth and hence demand for oil. “We have to act now to slash greenhouse gas emissions if we are to have a chance to keep the increase in temperatures to manageable levels”, said WMO Secretary-General Michel Jarraud.
This puts an effective cap on oil prices, for as prices rise, supply will be able to meet it quickly. The IEA estimates that the oil industry will slash upstream investment by 20 percent in 2015, which will cut into long-term supply figures.
If the investments continue to weaken, the oil market could face a serious setback in the near future. “The current overhang in supply should give no cause for complacency about oil market security”. In this scenario, OPEC continues to pursue market share, US shale remains resilient, and the global economy doesn’t perform as well as expected.
In its annual World Energy Outlook, the IEA said that the production cut, headcounts reduction, and falling upstream exploration and production (E&P) activities will not help the crude oil market to regain its momentum, as annual oil demand would struggle to increase.
Oxu.Az reports that according to him, the reduction of investments in the sector by $ 130 bn will lead to an increase in oil prices.
Policy is reinforcing cost trends – renewables are getting cheaper while fossil fuels are expected to become more expensive.
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The USA meanwhile, the largest consumer of oil in the world, is set for declining demand, as will the European Union and Japan. While OPEC may gain market share in the long run, they will have to deal with the pain of low oil prices in the short run.
