Baku, Azerbaijan, Feb. 7
By Khalid Kazimov - Trend:
The increase in oil prices that was the case in the past decade was a natural reaction to political developments and situations in the market, expert Reza Taghizadeh told Trend on Feb. 7.
Crude oil prices have fallen by 59 percent since last summer, amid an escalating supply glut as US shale oil producers ramped up production.
The OPEC cartel, led by the world's top producer Saudi Arabia, has decided to maintain production levels despite falling prices, in a bid to maintain market share.
The decision is to start to influence the non-OPEC producers, according to Standard Chartered bank.
"Non-OPEC output is being hit hard, and we now expect the oil market to tip into supply deficit in H2," the bank said.
Last week British Petroleum announced that it was going to cut its previously planned investments by $2 billion.
On the other hand, IEA Chief Economist Fatih Birol said at the World Economic Forum in Davos Jan. 21 that the total investment in oil projects may fall by $100 billion, or 15 percent, this year.
The changes come at a time when no outcome could be positively confirmed for the ongoing nuclear talks between Iran, the major oil producer and the P5+1 group.
Taghizadeh said that if the talks do bear fruit, OPEC would be likely to increase its oil output by 1 million barrels a day.
But under current circumstances, such expectations are way too optimistic, the expert noted.
Moreover, the critical situation in the Middle East also had impact on the market.
Oil prices have recently resumed their move upwards but not with equal pace. WTI and Brent experienced a higher restoration in price than that of OPEC crude.
Brent crude to be delivered on March 15 was sold at $58.21 on Feb. 6, which indicates 2.9 percent increase day-to-day, while the figure was fluctuating below $49 in the week to Jan. 25.
The Brent price was about $112 in June 2014, while OPEC basket price was around $108 per barrel.
Taghizadeh stated that single shipments by Iran, as well as Saudi Arabia's special discount to move Iran out of the market have contributed to OPEC oil basket price's slow re-storing.
The price difference between Brent and OPEC basket was around $3 to $4 per barrel in December 2014, but currently the difference is about $8/barrel.
"The plunge in oil prices below $40 will benefit none of the two oil producing groups," he said.
The expert estimated that the situations will also make US companies reduce their investment in shale oil, so the stabilization of oil prices at around $50 a barrel, I think, has got more chance than a slip below $40 in the weeks to come," he said.