Abu Dhabi: Analysts are sceptical about oil prices crossing the mark of $50 (Dh183.5) per barrel this year despite the president of the Organisation of the Petroleum Exporting Countries (Opec) expressing optimism that oil prices are on the path to recovery due to increase in demand from oil consuming countries.
In a statement Opec president Dr Mohammad Bin Saleh Al Sada said big drop in capital expenditure in oil and gas projects this year and the last year and further curtailment of investments in the next four years will lead to tightening of the oil markets and drop in oil supply.
“The current bear market is only temporary and oil price would increase during later part of 2016,” said Al Sada in a statement.
He did not give a specific figure but analysts said it would be difficult for oil to surpass $50 per barrel by the end of the year.
“The overhang of supply will make it difficult for oil to make a clear break back above $50 before the end of the year. The resilience among US producers will eventually determine how much above $50 oil can go during 2017,” said Ole Hansen, head of commodity strategy at Saxo Bank.
He said the US production has stabilised while Opec and Russia continue to increase production.
“As a result, we are seeing the rebalancing process once again being delayed meaning lower prices for longer. The third quarter is expected to be challenging due to the seasonal slowdown in refinery demand which tend to lead to rising inventories.”
Commenting on Opec President’s remarks, he said the market will continue to rebalance but it will be slow.
“The fact that they are once again verbally intervening in the market by talking about a new meeting highlights the nervousness among producers following the latest return to $40.”
On Monday Brent crude, the global benchmark, was trading at around $45 per barrel. Oil price went up by 2 per cent on Monday due to fresh calls made by Opec member countries on production freeze. However, Russian Energy Minister Alexander Novak was quick to dismiss calls for a freeze.
Reuters reported Russian Energy Minister Alexander Novak telling reporters that “the position of Russia is that the prerequisites for this have not yet come to pass, considering that prices are still at a more or less normal level”.
Opec in a statement said they will continue to monitor developments closely and is in constant deliberations with all member states on ways and means to help restore stability and order to the oil market. An informal meeting of the Opec member countries is scheduled on the sidelines of the 15th International Energy Forum in Algeria next month.
