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Hopes of a supply cut deal push up oil prices


Hopes of a supply cut deal push up oil prices



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Crude prices headed up on Tuesday – rising five percent – on hopes that OPEC and non-OPEC producers may be edging closer to a deal to pump less oil and address the supply glut.

That followed comments this week by OPEC Secretary General Abdullah al-Badr and Leonid Fedun, vice-president of Lukoil, Russia’s second largest producer.

Speaking in London, al-Badri said other producers should work together with the group to tackle swollen global stockpiles so prices can recover, essentially reiterating OPEC’s longstanding position that it would only consider cutting output if others pitch in.

The Lukoil boss reportedly said: “The practice of filling the market with cheap oil at any cost is wrong; half a year or a year later it could be sold at twice as much.”

Hari Vamadevan, regional manager, UK and West Africa, with DNV GL, an oil and gas industry service company, said everyone cooperating is the only way that production can be cut: “It’s not so much oversupply of OPEC, it’s really the rest of the world, the Americans, the Russians. Also the lifting of sanctions in Iran, the growth of Libya, Iraq. All those are new growth in production. The Saudis are pretty much pumping at the same level they have done for quite a while and can probably pump a little bit higher. Their unit cost of production is lower, so they can keep pumping, so to some degree they will carry on. The impact on their own economy is like all economies that are based on oil and gas is they’re seeing a big reduction in their income and they are going to have to borrow more to balance their economies.”

However the OPEC call for rival producers to cut supply alongside its members doesn’t seen to contain much new and it is the Kremlin controlled Russian companies rather than Lukoil that call the shots there, making this seem a bit like wishful thinking by oil traders.

Price forecast slashed by World Bank

Meanwhile the World Bank has slashed its forecast for crude oil prices by $14 to $37 per barrel for 2016, amid growing supply and weak demand prospects from emerging markets.

In its annual Commodity Markets Outlook, the World Bank lowered its price forecast for 37 of 46 commodities, including oil, saying that weak demand from emerging economies is likely to continue.

World Bank economists said weak demand would continue even as oil supply grows with the resumption of Iranian exports, continued U.S. production and a mild Northern Hemisphere winter.

Oil prices should decline another 27 percent in 2016 after plummeting by 47 percent last year, according to the outlook. The World Bank uses an average of Brent, Dubai and West Texas Intermediate oil, equally weighted.

World Bank economists said they expect a gradual recovery in oil prices over the course of 2016 but the rebound will be smaller than in previous years that followed sharp declines, including 2008, 1998 and 1986.


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