Baku, Azerbaijan, Nov. 20
By Aygun Badalova - Trend:
The oil price will hit a low point during the first quarter of 2016 when Iranian oil supply picks up and then stabilize before moving towards $60 by year-end, Ole Hansen, Head of Commodity Strategy in Danish Saxo Bank believes.
"Lower than expected demand growth combined with resilient production from US shale oil producers currently poses the biggest threat to the expected rally during H2," Hansen told Trend.
He believes that the key driver behind the recent and renewed weakness in oil prices has been the market fixation on the continued global overhang supply.
The prices, he noted, will be determined by how quickly a balance between rising demand and an even bigger rise in supply can be achieved.
Hansen said that the oil tanks across the world have been filling during the past couple of years and it will take time before situation normalizes.
"Multi-billion dollar projects have been cancelled but the impact of this in terms of reduced supply will only be felt towards the end of the decade," Hansen said.
He also believes that with the prospect of an additional 500,000 million barrels from Iran during the first half much of the rebalancing depends on production cuts among the non-OPEC producers.
"Not least from US shale oil producers where the current sub-50 dollar price is deep into this industry's cost curve and this will eventually trigger an even greater reduction than the one seen already," the expert said.
Provided demand growth remains as robust as currently projected, we should see the oil price begin to stabilize and climb higher as we move into the second half of 2016, according to Hansen.
"At this stage the line in the sand remains around $60 a barrel as a rally above could trigger an increased from thousands of drilled but not yet completed wells in the US," he added.
Oil prices have tumbled from a peak of around $102 per barrel in June last year, to just below $48 per barrel today.
A tightening oil balance will lead to a price for oil around $80 per barrel by 2020, according to the forecasts of the International Energy Agency (IEA), published in its recent World Energy Outlook.
IEA forecasts global demand growth to slow to 1.2 million barrels a day in 2016 after surging to 1.8 million barrels a day this year.
Global oil supplies amounted to 97 million barrels per day in October, according to the IEA. Despite the resilience of producers such as Russia, non-OPEC supply is forecast to contract by more than 0.6 million barrels per day next year. US light tight oil, the driver of non-OPEC growth, is expected to decline by 0.6 million barrels per day in 2016.
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