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Jump transient, oil market looking gloomy for 2016 H1

Jump transient, oil market looking gloomy for 2016 H1

2.5 million tons of oil delivered from Ceyhan Port to world market in October 2016 (07 November 2016 16:46)

Date: 9 January 2016 08:07

Tehran, Iran, January 9

By Mehdi Sepahvand –- Trend:

Despite a little jump in oil prices as of January 8, it is hard to imagine that crude will witness major alteration in the first half of the current year.

Prices started to go down in early 2014 and have not shown any sign of improvement so far.

On January 7, the US benchmark crude-oil contract tumbled $0.7, or 2.1 percent, to reach $33.27 per barrel to strike the lowest close since 2004.

Asian markets closed mixed on the last day of 2016's first trading week. The week had seen the Chinese market shut down prematurely two times in order to stem rapid selloffs.

On January 8 a rally started after the latest figures pointing to robust US production even as a supply glut drags prices to about lowest on record. Crude recovered after its latest crash, with Brent rising close to 6 percent from its latest trough to above $34 per barrel. However, the rise was due to a recovery in Chinese shares, and warning must be given against reading too much into it.

Fereydoun Barkeshli, former general manager of National Iranian Oil Company (NIOC) in OPEC and International Affairs told Trend January 8 that prices will remain low for half a year or so.

My perception is that during the first half of 2016 we will continue to witness a volatile market and even more downward pressure. However, by the second half prices will stabilize in the range of $45-50 per barrel, said Barkeshli, currently a private energy consultant and president of the Vienna Energy Research Group.

When prices started sliding in early 2014, most analysts missed no time to put the blame on Saudi Arabia's oil diplomacy and that there was a US-Saudi conspiracy to push down crude oil prices in an effort to exert pressure on Iran and Russia for obvious reasons.

But as time passed and especially when crude prices went bellow $50 per barrel and began to threaten US Shale oil production, market analysts turned to fundamentals and supply-demand in an effort to explain the fall in prices.

On the supply side, crude oil abundance all over the world and on demand side Chinese economic slowdown which has acted as the engine of oil demand consumption growth for the last ten years were responsible for the situation, according to Barkeshli.

“I consider the above as an intrigue that required consideration. I do not believe that as long as there is no direct threat to actual and physical oil flow in the market, prices show any meaningful sensitivity,” he stated.

“Nevertheless, I personally believe that major oil companies are increasingly restless. The value of their share has fallen and stakeholders are uncomfortable. For the first time in eleven years, there is only one oil company in FORBE's top 100 companies. What I intend to say is that investment pattern in oil industry is in bad shape and that hurts IOCs as well as NOCs that might lead to a coalition to stabilize crude prices.”

The same was said by Iran’s former representative at the Organization of Petroleum Exporting Countries (OPEC) Mohammad Ali Khatibi.

Putting aside non-economic factors which may alter the market, the existing situations do not indicate any rise to come in the first half of 2016, he said.

Supply is still going to outdo demand throughout the first half of the year, Khatibi stated, adding however that in the second half, a balance is expected to settle and the market will become more powerful.

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