Upside for oil prices to be limited in coming months

Oil&Gas Materials 11 February 2015 18:04 (UTC +04:00)

Baku, Azerbaijan, Feb. 11

By Aygun Badalova - Trend:

Continuation of oversupply in the global oil market limits the upside for prices in the coming months, Tom Pugh, commodities economist at at British economic research and consulting company Capital Economics believes.

"Oversupply in the oil market will probably continue until demand picks up and US oil production growth begins to ease off in the summer. This will limit the upside for prices in the coming months," Pugh said in a report obtained by Trend.

At the same time the economist said that there are no signs of OPEC's output being cut in response to lower prices.

"Continued high output from non-OPEC producers and a seasonal slump in demand mean that the "call on OPEC", which is the amount of oil that OPEC needs to produce to balance the market, is forecast to be less than 28 million barrels per day for the first half of this year," Pugh said.

"This means that if OPEC output stays at around current levels, as we expect, there is likely to be an oversupply of about 2.5 million barrels per day in the first half of this year," he added.

Overall, Pugh believes that oil supply should continue to remain ample over the next year.

Analyst, however, expects that lower growth in non-OPEC production and higher demand will put some upward pressure on oil prices in 2016.

The company's end-2015 and end-2016 forecasts for a barrel of Brent are $60 and $65 per barrel respectively.

Non-OPEC's oil supply will grow by 0.85 million barrels per day in 2015 to average 57.09 million barrels per day, according to OPEC's latest Oil Market report. Non-OPEC supply growth in 2015 is expected to experience increases in all quarters of 2015 on a y-o-y basis, but at a slower pace.

"According to secondary sources, total OPEC crude oil production in January averaged 30.15 million barrels per day, a decrease of 53,000 barrels per day over the previous month. Crude oil output decreased mostly from Iraq and Libya, while production showed an increase in Angola, Saudi Arabia, Kuwait and the UAE," the report said.

OPEC crude oil production, not including Iraq, stood at 26.8 million barrels per day in January, up by 226,000 barrels per day over the previous month.

Global oil supply decreased by 0.29 million barrels per day to average 93.15 million barrels per day in January 2015 compared with the previous month, according to OPEC's report. The decline of OPEC production as well as non-OPEC supply in January decreased global oil output. The share of OPEC crude oil in total global production increased slightly to 32.4 percent in January compared with the previous month.

Aygun Badalova is Trend Agency's staff journalist, follow her on Twitter:@AygunBadalova