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Oil prices should see strengthening in second half of 2016

Oil prices should see strengthening in second half of 2016

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Date: 16 December 2015 19:32

Baku, Azerbaijan, Dec. 16

By Elena Kosolapova – Trend:

The oil price is near its bottom and in the second half of 2016 it should see strengthening as global demand growth and decline in non-OPEC supplies lead to rebalancing, Michael Maher, senior program adviser for the Center for Energy Studies in Rice University's Baker Institute, told Trend.

He noted that in short term oil prices can experience effect of the extent of US shale oil output decline; rate of Iran’s possibilities to ramp up production; and demand growth in Asia and the US.

In the medium term, oil prices will be influenced by the fact of cancellation or delay in major conventional oil mega projects worth over $200 billion to date.

“Once deferred, these projects cannot be restarted quickly. Project teams have been disbanded or even laid off. These include projects in West Africa, Canada, Australia, Indonesia, Norway as well as the U.S. offshore,” Maher said.

He noted that layoffs of nearly 200,000 workers have cut capabilities of companies in oil services, equipment and supply and this damages their ability to react when oil producers are ready to move.

The expert believes that the lost and delayed oil production will provide room for price rises and/or OPEC output growth in the medium term even when US shale oil output reverses its decline.

Regarding OPEC future policy, Maher expects that Saudi Arabia is not likely to cut production as it has its eye on pushing out oil from expensive offshore, oil sand, Arctic areas so that it can keep or increase its production over the medium term. Meanwhile he noted that history has shown that even if Saudi Arabia cuts its production quotas, the other OPEC countries cheat and exceed their targets.

Speaking about US shale oil production, Maher noted that it continues to decline.

“But if oil prices rebound over the next several years, shale producers can ramp up quickly compared to large conventional oil projects,” he said.

Moreover if the US removes its oil export ban, it will lead to its production increase, Maher said.

He noted that the export ban has kept US shale oil prices at a discount to world prices and with the end of the export ban, shale producers will receive global prices for their production and US shale production and oil exports will grow as global oil prices rebound.

Meanwhile, in the short run oil export ban removal will not have a large impact on the world markets.

“Shale will help moderate the future rise in oil prices but demand growth worldwide over the medium term cannot be met by shale alone,” Maher said.

On Dec. 16, Brent crude fell 2.6 percent to $37.46 a barrel on London’s ICE Futures exchange.

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