Baku, Azerbaijan, Jan.29
By Leman Zeynalova – Trend:
Short-term high price is good for any producer, but it risks long-term financial damage, because of reducing demand for oil, and losing market share, Spencer Welch, director of the oil markets and downstream team in the London-based IHS Markit told Trend.
He was commenting on remarks recently made by Iran’s Oil Minister Bijan Namdar Zanganeh who said that crude at $60 a barrel is “good,” and warned that if it were to go higher, it will encourage production of more expensive supplies such as shale, leading prices to drop again.
Welch pointed out that there is no single “good” price for the market, it is different for everyone depending on whether you are a consumer or producer, and if you are a producer depending on your production cost and who you are competing with for market share.
The expert went on to add that the current oil price is resulting in huge surge of US shale oil production, US crude production increased by almost 1 million barrels per day from January 2017 to December 2017.
“We expect a similar rate of growth in both 2018 and 2019, this is the same rate of growth in 2010-14 which led to the oversupply and price crash in 2014/15. It is unlikely, but not impossible, that this will happen again because oil demand is growing strongly,” added Welch.
He pointed out that in truth nobody really knows what price is “good” for them, because the future is unknown.
“IHS Markit view is that current oil price is a little high, market fundamentals suggest the price should drop back towards $60 per barrel. Currently the market price is being driven high by geopolitical risks and positive market sentiment. Sentiment can change very rapidly, it only takes a bit of bearish data,” the expert concluded.
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