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‘It would be very difficult for oil prices to stabilize in 2016’

Oil&Gas Materials 4 August 2015 20:36 (UTC +04:00)
It would be very difficult for oil prices to stabilize in 2016, Jamie Webster.
‘It would be very difficult for oil prices to stabilize in 2016’

Baku, Azerbaijan, Aug.4
By Elena Kosolapova - Trend:

It would be very difficult for oil prices to stabilize in 2016, Jamie Webster, senior director of IHS Energy Downstream Research told Trend.

"Oil is still very oversupplied, indicating it would be difficult to maintain stable pricing," he said.

"I disagree that prices are stable," he said. "They were fairly flat from about May to early July but since then have broken sharply downward, with Brent down nearly $15 per barrel."

Webster said OPEC is not able to control prices at all, and its current stance of not curtailing production will further ensure it has no effect on price setting.

The greatest chance is if there is a substantial price drop from the US in the next few months, he added.

July report of IHS Energy said that global production is up about 2 MMb/d since the November OPEC meeting, driven by the United States, Saudi Arabia, Iraq, and to a small extent, Russia, said Webster.

However, the US upstream industry is highly decentralized, said the report.

"Rapid oil drilling and completion times (approximately four months from planning to first oil) and high decline rates (approximately 50 percent in first year) can give the effect of a production cut as lower investment will cause declines that bring total production down," said the report. "This is very different from the OPEC and Saudi Arabia strategy in the prior era of shutting in production."

Given this role and context, a US production decline appears to be the most rapid avenue for an erosion in the supply glut-but this may send prices falling even further, according to the report.

"Production growth from the rest of the world, including Saudi Arabia and Iraq, is unlikely to keep pace with demand growth if US production falls appreciably," said the report.

Earlier, Secretary General of OPEC Abdalla Salem el-Badri said the oil prices will get no lower, as demand is surging and production going down.

"Prices will stabilize in 2016. We expect stability on the oil market over the long term."

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Follow the author on Twitter: @E_Kosolapova

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