Baku, Azerbaijan, July 2
By Leman Zeynalova – Trend:
OPEC has done the job but there are a lot of uncertainties which could have an impact on the oil market, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris) told Trend.
He was commenting on the decision made in the recent OPEC meeting to further extend the oil production cut deal.
“According to OPEC's latest projections world oil demand would increase by 1.14 million barrels per day in 2019 and non-OPEC oil supply by 2.14 million b/d. In this context it was very important for the organization to extend the production cuts until the end of March 2020. Otherwise a significant fall in oil prices would have been very likely. OPEC has done the job but there are a lot of uncertainties which could have an impact on the oil market and prices and the organization and its non-OPEC partners will have to remain very vigilant about this situation and to be ready to react rapidly if needed,” said the expert.
Perrin pointed out that OPEC estimates that bearish factors are prevalent now on the oil market.
“The main bearish factors are the rise of the US oil production thanks to unconventional crudes and the tensions around trade, especially (but not only) between the US and China. But there are also some bullish factors: a rising world oil demand (even if the projections have been revised downwards due to the macroeconomic environment), OPEC and non-OPEC's efforts to reduce their oil output, US sanctions on Iran, tensions in the Gulf and the Venezuela crisis,” added the expert.
As for the US, Perrin said that in the recent period President Trump has been much less vocal on oil prices than in 2018.
“One of the main reasons explaining this change is that oil prices fell significantly over the past few weeks. North Sea Brent closed at about $65 per barrel yesterday in London despite strong tensions between the US and Iran (and between Saudi Arabia and Iran). It had reached $75/b several weeks ago and as much as $85-86/b at the beginning of October 2018. Moreover the price of Brent is higher than the price of the main US crude, the West Texas Intermediate (WTI). WTI closed at $59/b yesterday, which is not a very high level.”
In terms of demand-supply balance the present situation is fairly good, the expert believes.
“Despite US sanctions on Iran, grave tensions in the Gulf region, the crisis in Venezuela and the war in Libya there is no oil shortage. To sum up, whether we look at volumes or prices the situation on the world oil market today is under control and the Trump Administration has (so far) no reason to criticize OPEC too harshly,” he said.
However, the expert believes that the impact of this decision on world economic growth and prospects is rather limited. “The future results of the trade negotiations between the US and China will be much more important in this regard.”
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