Abu Dhabi: Oil markets are expected to rebalance in the second half of this year as oil supplies decrease due to massive cuts in capital expenditure by oil and gas companies, analysts said.
From less than $30 (Dh110) per barrel in January, oil prices have recovered and moved towards $50 per barrel with Brent trading at $48.50 on Friday due to optimism that global oil glut will ease.
“We believe under normal conditions towards the end of this year, second half of this year but latest 2017, markets will rebalance,” International Energy Agency (IEA) chief Fatih Birol said on Sunday.
Similar optimism came from The Bank of America Merrill Lynch, which in a note on Sunday said oil will trade above $60 in 2017.
“The global output is set to contract year on year in April or May for the first time since first quarter 2013 as Opec [Organisation of the Petroleum Exporting Countries] growth no longer offsets non-Opec declines,” Bank of America Merrill Lynch said in a note.
The bank said the drop in supply has come on the back of massive cuts in global oil and gas capex. “Our new analysis points to non-Opec oilfield decline rates of 4.9 per cent on average this year, up from 4.2 per cent in 2014,” it said.
Capital spending
A number of oil and gas companies have been cutting capital expenditure as low oil price hurts their earnings. BP is planning to cut capital spending further after reporting an 18 per cent drop in profits in the first quarter.
The British oil company, lowered its 2016 spending target to $17 billion, from $17-19 billion, and said it could fall to $15-$17 billion next year if oil prices remain weak.
Edward Bell, commodity analyst from Emirates NBD said over the long term, rebalancing in the oil market will happen that will push the prices higher but lack of consistent rationalisation of production could be negative for oil prices in the short term.
“We are really not seeing consistent rationalisation of production though it’s falling in the United States but certainly among the Opec country members it’s not and is increasing. So global market remains in surplus with inventories being high.”
He said Opec production volumes remain high with 480,000 barrels a day of production from March to April.
“That is very large increase in production in single month well over what we lost in the US so far this year. Iran and Iraq have been the big contributor to supply growth.”
Oil supplies from shale producers in the US is on decline due to drop in oil prices. According to a Drilling Productivity Report released on April 11, the US based Energy Information Administration expects crude oil production to fall by 4.2 per cent at all of its seven key shales by May 2016 compared to March.
