The following interview was given by Olivier Rech (Beyond Ratings’ Head of Energy-Climate research) to El Watan on the 6th September 2016.
Crude oil prices recovered today in London, gaining about 5% along the first half of the trading session. Do you think that there are signs of hope stemming from the comments of some OPEC members, on the wake of the informal meeting planned in Algiers this September?
The crude prices indeed spiked today following the announcement that Russia and Saudi Arabia were about to sign an agreement. The rise reached more than USD 2.00/barrel within a few minutes after the information leaked (which is a significant +4%) and the barrel got closer to the psychologic ceiling of USD 50.00. But the first details that were released in the press released cooled down the market’s ambitions. Although the Russian-Saudi initiative is noteworthy as a signal, the agreement that was settled between the two energy ministries does not refer to any immediate cooperation decision that would help regulating the market or any production reduction… not even to a freeze in the present output level. As of now, the oil price is indeed already going down.
Markets keep on swinging at the pace of an excess in offer that seriously impacts the prices. Do you think that the overproduction trend could be contained by the end of the year? Otherwise, could there be any other factors likely to drag the prices down?
The world oversupply remains massive. We are talking of roughly 350 million barrels if we only only take into consideration the OECD countries’ stock level. Absorbing this oversupply would require a steep in the output, roughly 1 million barrels per day for a year, assuming the world demand remains unchanged. Sadly, the IMF keeps on downgrading its world economic growth forecasts. We can expect that the forecasts of overall world demand for oil follow that declining trend by the end of 2016 and in 2017. That’s another factor that will add up to the global pressure on crude oil prices.
Can we expect a consensus decision on the output during the next meeting in Algiers, or should we expect a status quo, as a consequence of top players’ divisiveness?
The informal meeting planned in Algiers by the end of September will gather the main stakeholders of the oil business. First and foremost, Saudi Arabia and Iran, but also Russia. This could be the beginning to a joint-initiative, or even a decision, but the Saudi Minister for Energy, Khalid Al-Falih already said that he did not think an intervention was needed. And whatever happens, he will not support any action. As of today (i.e. September 4th), I think that the Algiers meeting will therefore be the repetition of what happened in Doha in April. Maybe not the same words… but most likely the same actions… which means status quo.