29 Mar 2024
Friday 30 September 2016 - 23:13
Story Code : 233329

OPEC output freeze gives oil price big boost on way back to $100 per barrel

Next year the oil price will head back towards $100 per barrel as the market gets used to shale oil, Michael Poulsen, oil analyst at Global Risk Management Ltd, told Radio Sputnik.

The 14 members ofOPEC held a meeting inAlgiers onWednesday, where some ofthe world's largest oil producers unexpectedly agreed tocut production forthe first time ineight years.

The cartel has agreed toimpose an output ceiling ofbetween 32.5 million and 33 million barrels per day. In August, OPEC produced 33.327 million barrels ofoil per day, a decrease of23 thousand barrels a day compared tothe previous month.

Oil prices spiked onnews ofthe agreement inAlgiers, and the price ofthe industry benchmark Brent Crude settled up5.9 percent. The price increased byanother 1.1 percent onThursday, closing at $49.24 per barrel.

Michael Poulsen, oil analyst atGlobal Risk Management Ltd, spoke withRadio Sputnik, calling Wednesday's sharp rise a "kneejerk reaction," aftera previous attempt byOPEC toreach an agreement inApril inDoha failed amida disagreement betweenSaudi Arabia and Iran, two ofthe cartel's biggest producers.

"A lot depends onNigeria and Libya; how much they're going tobring tothe table interms ofincreased output sinceit's mainly some ofthe other countries that are cutting. If Nigeria and Libya increase their production, the cut will be a little less thanwhat's currently onthe cards," Poulsen said. In addition, it appears that Saudi Arabia has agreed to grant Iran its main condition, ofcontinuing toincrease its production topre-sanctions levels followingthe lifting ofeconomic and financial sanctions associated withits nuclear program inJanuary. Last month the energy ministers of Saudi Arabia and Russia met atthe G20 summit inBeijing, and agreed towork together totry tostabilize oil prices. If Russia were tojoin the production freeze, "we could see another leg upwards inprices," Poulsen said.

It will take some time forthe oil market toget used tothe flood ofshale oil production capacity which was put inplace inthe US and other countries inthe run-up tothe 2014 collapse inprices. However, a supply glut and low prices now have led tooil companies cutting investment innew projects, which leads toless supply later.

"We need abouta year or two atleast forthe market toabsorb the shale oil that hit the market just a couple ofyears ago once demand catches upwith this additional supply we saw fromthe shale oil production, we are ina completely different scenario." Poulsen thinks the oil price will remain around $50 per barrel forthe next three months, beforeit edges upnext year and inthe longer term returns toaround $100 a barrel. "We probably need two-plus years forthat tobe a realistic figure, aswe are still inan oversupplied market and we are scheduled tobalance outsomewhere in2017. I would say, end-of-2018, there is an increasing likelihood that we will see a trip towardsthree digits again."

By Sputnik
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