Baku, Azerbaijan, April 18
By Aygun Badalova - Trend:
Supply-side re-balancing will gather pace in the second half of 2016 with the oil market moving into deficit from 2017, according to the expectations of BMI Research, which is a part of Fitch Group.
"In the near-term, there are some downside risks to price (in particular from Kuwait), but the general outlook is very bullish and we expect Brent to end the year significantly higher," Emma Richards, an oil and gas analyst with BMI Research told Trend.
Oil prices rose on April 19 as a strike in Kuwait cut huge amounts of crude out of the supply chain.
Kuwait's crude output fell to 1.1 million barrels per day (bpd) on Sunday, from 2.8 million bpd in March as thousands of workers went on strike, according to Reuters.
Brent crude was at $43.25 a barrel at 0651 GMT, 34 cents above their previous close. The US WTI futures were up 33 cents at $40.11 a barrel.
Richards noted that looking at prices and at positioning in the Brent futures and options markets, sentiment was very bullish in the run up to the meeting in Doha.
She believes that market participants were pricing in a freeze.
"Those expectations have obviously been disappointed and prices have declined in response. That being said, the decline has been much softer than I had anticipated, with the +1.5 million bpd outage in Kuwait offering key support," Richards said.
Oil producers on Sunday in Doha failed to reach a deal to freeze oil output. The talks collapsed after Saudi Arabia surprised the group by reasserting a demand that Iran also agree to cap its oil production.
Richards said recent developments in the oil markets have exposed some of the weaknesses in OPEC. The deterioration of relations between Saudi Arabia and Iran has been a key part of that and of the difficulties putting the freeze agreement in place, she believes.
Cyril Widdershoven, Middle East geopolitical specialist and energy analyst, partner at Dutch risk consultancy VEROCY and SVP MEA-Risk told Trend, that oil price assessments are difficult, but looking at all, a price of $60 is not far-fetched.
"It just needs to be assessed by most producers if this would be the right approach. Putting more pain on non-OPEC and new producers will force them out more, and block possible new investors to join the market to quick. We also will see the negative effects soon of 3-4 years of CAPEX cuts, production will be hit," Widdershoven said.
He believes that the demand-supply issue is bottoming out - demand is growing, while supply has been decreasing.
"The fundamentals already show since long that a price increase is imminent," analyst said.
Widdershoven believes that current instability in the market even supports the idea that if there is new geopolitical confrontation in the world, prices even will hike.
"Due to lower investments, and a lack of new production, demand will push prices up. If the market looks rational again, you will see a steady price increase for the next months to come. A new agreement between OPEC-Russia and others in June only would be a bonus, putting a bottom under the price and pushing it up even further," Widdershoven said.
Global oil markets are moving toward a supply-demand balance in the second half of 2016, as demand growth remains steady while non-OPEC oil production continues to decline, according to the International Energy Agency (IEA).
The agency expects global oil demand will ease to 1.2 million bpd in 2016. Global oil supply is expected to shrink by 300,000 bpd to 96.1 million bpd.