Bloomberg/London
The oil market will rebalance in the next several months as a price collapse boosts consumption and curbs supplies, the International Energy Agency said, a day after Saudi Arabia’s oil minister told reporters demand is rising.
An oil price as low as $45 a barrel is unsustainable, Fatih Birol, the chief economist for the Paris-based adviser to 29 nations, said at a conference in London yesterday. Investment cuts in the US, Russia and Brazil will curtail output growth, bringing supply and demand back in line, he said.
“As a result of lower prices, there will be downward pressure on production,” Birol said, adding that the market will rebalance in the coming months or quarters. “As a result of lower prices, there will upward pressure on demand.”
Oil slumped by almost half in 2014 as the Organisation of Petroleum Exporting Countries maintained output amid the fastest US production in three decades, perpetuating a surplus. Prices rebounded this month as oil producers idled rigs and cut investment.
The balance between supply and demand is already looking more positive, London-based Energy Aspects said in a report on Tuesday. Global oil consumption expanded by 2.2mn bpd in December from a year earlier, the strongest growth in 18 months. Violence in Libya and bad weather in the Arabian Gulf have also disrupted supply to world markets this month, the consultant said.
Brent crude, international benchmark, has risen 36% from a near six-year low of $45.19 a barrel on January 23.
Investment in oil production might fall by $100bn this year, putting upward pressure on prices in the second half of the year, Birol said at the World Economic Forum in Davos on January 21. The US will pump 200,000 bpd less crude this year than previously estimated as companies cut back, the IEA said in a report on February 10.
The number of rigs targeting oil in the US shrank by 37 last week to 1,019, the fewest since July 2011, data from Baker Hughes Inc showed on February 20. Since December 5, a total of 556 have been taken out of service. Oil producers including Royal Dutch Shell and Chevron Corp have announced spending cuts of almost $50bn since November 1, according to company statements compiled by Bloomberg.
Chinese energy demand growth is slowing and will continue to do so in the coming years, Birol said yesterday. Iraq faces a “structural issue” in dealing with Islamic State militants who control parts of the country and that won’t be resolved in the short term, he said.
Oil use seen picking up by al-Naimi
Oil demand is growing and the market has turned “calm,” according to Saudi Arabia’s o(pictured) told reporters after a speech at a conference in the Red Sea city of Jazan in the nation’s southwest on Wednesday. Saudi Arabia will remain the largest oil exporter, he said, without specifying dates.
Kuwait’s oil minister said this month the surplus in global crude supply is less than the 1.8mn bpd the country estimated last month and that prices will continue to recoup losses. Global oil demand rose 2.2mn bpd in December from a year earlier, the strongest growth in 18 months, London-based Energy Aspects said on Tuesday.
Saudi Arabia intends to be the biggest exporter of refined oil products, after the US, al-Naimi said, without giving any dates. The US exported 2.66mn bpd of refined products in 2013, according to the US Energy Information Administration. Saudi Arabian Oil Co, the kingdom’s oil-producing and refining company, shipped 331,500 bpd out of a capacity of 2.6mn bpd, according to the company’s annual review.
The largest Arab economy is spending billions of dollars to diversify its economy, including expanding refineries and chemical plants. Saudi Arabian Oil, known as Saudi Aramco, and Dow Chemical Co expect to start production at a $20bn chemicals venture this year. The nation is seeking to reduce oil’s share of gross domestic product, al-Naimi said, without providing details.
Saudi Arabia is investing 70bn riyals ($18.7bn) in Jazan for a refinery, port and 4,000-megawatt power plant, Aramco chief executive officer Khalid A al-Falih said at the same conference on Wednesday.
Ali al-Naimi
