Oil market no longer free, here is why
Baku, Azerbaijan, Jan.23
By Leman Zeynalova – Trend:
Oil prices are likely to remain in range of $55-$75 per barrel in 2019, Spencer Welch, director of the oil markets and downstream team in the London-based IHS Markit told Trend.
He noted that if crude prices start to rise, then OPEC will reduce production cuts, if prices drop too low then the US will feel that they are able to increase sanctions on Iran.
"The oil market is no longer a free market, because we have two separate groups (OPEC + allies & US administration) setting policy based on oil price, both are trying to control price in an acceptable range. US administration wants tough sanctions on Iran but doesn’t want price going too high because this is not good for votes. OPEC wants to maximize production but is concerned if price drops below $60 per barrel," said Welch.
So, according to the expert, the key to 2019 oil markets is to watch are three things: the policy decisions by these two groups and also US production growth, particularly in 2H19 as new pipelines come on-stream to help get Permian crude to US Geological Survey (USGC) for export.
The Energy Information Administration (EIA) expects that US crude oil production will average 10.9 million b/d in 2018, up from 9.4 million b/d in 2017, and will average 12.1 million b/d in 2019.
OPEC and non-OPEC producers reached an agreement in December 2016 to curtail oil output jointly and ease a global glut after more than two years of low prices. OPEC agreed to slash the output by 1.2 million barrels per day from January 1.
Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan agreed to reduce output by 558,000 barrels per day starting from January 1, 2017.
OPEC and its partners decided to extend its production cuts till the end of 2018 in Vienna on November 30, as the oil cartel and its allies step up their attempt to end a three-year supply glut that has savaged crude prices and the global energy industry.
The 5th OPEC and non-OPEC Ministerial Meeting was held in Vienna, Austria, on December 7, 2018.
The meeting participants decided to adjust the overall production by 1.2 million barrels per day, effective as of January 2019 for an initial period of six months. The contributions from OPEC and the voluntary contributions from non-OPEC participating countries of the ‘Declaration of Cooperation’ will correspond to 0.8 million barrels per day (2.5 percent), and 0.4 million barrels per day (2 percent), respectively.
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