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Oil market unlikely to move into balance by March 2018 – expert

Oil&Gas Materials 23 August 2017 14:34 (UTC +04:00)

Baku, Azerbaijan, August 23

By Leman Zeynalova – Trend:

It is unlikely that THE oil market balance will be achieved by March 2018, William Arthurs, chairman of the London-based Transatlantic Institute, told Trend.

“OPEC and the other producers, who have agreed to cut production up to March 2018, may attempt to stabilize or slightly increase prices,” said the expert, adding that this will only encourage further investment in US shale production technology, which cannot be controlled by OPEC.

“For this reason, it is unlikely that market balance will be achieved by March 2018. (Any disruption in production in Venezuela, caused by the current political unrest, would have a minor effect on inventory reductions.),” added Arthurs.

These factors are likely to make concerted action on production cuts beyond March 2018, difficult for OPEC to follow through, he believes.

“For market balance to be achieved in the medium term, OPEC would have to inspire confidence and credibility in the market. With the disruptive effect of shale production, this will be hard to achieve. The real long-term price trend for oil will be down,” said the expert.

The possibility of agreement within OPEC on further measures to extend or increase production cuts, depends on the relative standing of OPEC's individual members, between whom the current geopolitical situation has created stresses, and who have widely differing production costs: strains in these relationships are becoming apparent in current historically low compliance levels, as recently reported by the International Energy Agency, according to Arthurs.

On May 25, OPEC member countries and non-OPEC parties, Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan, and the Republic of South Sudan agreed to extend the production adjustments for a further period of nine months, with effect from July 1, 2017.

The reductions will be on the same terms as those agreed in November.

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Follow the author on Twitter: @Lyaman_Zeyn

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