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Saxo Bank: Azerbaijan should get ready for prolonged low oil prices

Saxo Bank: Azerbaijan should get ready for prolonged low oil prices

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Date: 17 December 2015 18:07

Baku, Azerbaijan, Dec. 17

By Anvar Mammadov - Trend:

Azerbaijan should get ready for prolonged low oil prices and reduce expenses wherever possible, Ole Hansen, head of commodity strategy at Saxo Bank, told Trend Dec.16.

He said that the oil market will continue to face challenges in 2016 due to the current oversupply, which continues to grow. Hansen said that the higher price of raw materials in the coming months can be achieved only by a sudden decrease in production by one of the producers included or not included in the OPEC (Organization of the Petroleum Exporting Countries), or by a major geopolitical event that will stop production.

“If none of these factors happen, the price will start to recover only when the demand finally catches up with a proposal,” Ole Hansen said. “Now I don’t make any short-term forecasts, because it just makes no sense. The market will begin to balance itself by late 2016 or early 2017, and then we will see the return of the Brent oil price back to around $55-$60 per barrel, after which it will rise higher to the level of $70-$80 at the end of this decade.”

He said that such an important player as Iran’s entering the market could adversely affect the situation on the oil market.

“Increasing the supply of raw materials from Iran and possibly also from Libya if the truce is reached, will further complicate the already difficult situation in first quarter of 2016,” Ole Hansen said. “The fact is that the US stocks tend to seasonal growth in the first four months of the year, and all this will affect the already existing oversupply.”

Hansen noted that growing supply on the market, decreasing demand and ongoing price war is the main reason for stable decline in oil prices.

The fight for market share that has been continuing for many years, considerably escalated as a result of using untraditional methods in production outside OPEC, he said.

The growth of demand remained steady, since the global consumers and companies benefited from the declining prices, while the production was growing even more rapidly, said Hansen.

Currently, the signs of crisis become increasingly apparent in energy companies and oil producing countries which will eventually lead to slow down production, thereby helping normalize the market, said Hansen.

The price for Brent Dated oil produced in the North Sea varies within $38 per barrel.

This is while the price for Azerbaijani light oil stood at $39.21 per barrel on Dec.15, or $0.94 more than on Dec.14.

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Follow the author on Twitter: @Anvar_Mammadov

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