Everyone in the oil market should stop panicking because crude supply and demand will return to equilibrium, Opec’s secretary-general said.
Members of Opec, who pump about 40 per cent of the world’s oil, aren’t waging a price war and haven’t demanded an emergency response to the plunge in crude futures, Abdalla El-Badri said at the Oil & Money conference in London on Thursday. While the direction of oil prices, which have collapsed about 25 per cent since June, remains unclear in the short term, they will have to rebound to guarantee long-term supply, he said.
“We don’t see really fundamental changes in the supply side or the demand side,” Mr El-Badri told reporters during a briefing at the event. “Unfortunately everyone is panicking. The press is panicking, consumers are panicking. We really should think and see how this will develop.”
Crude collapsed into a bear market this month as Saudi Arabia and other producers deepened price discounts for their oil. US crude production climbed to the highest level in at least 31 years last week as the shale boom moved the country closer to energy independence. Global consumption will increase this year at the slowest pace since 2009, according to the International Energy Agency.
The Organization of Petroleum Exporting Countries itself doesn’t face a “critical situation” as a result of the price slump, Mr El-Badri said. Opec’s collective output in 2015 will remain close to this year’s level of about 30 million barrels a day, he said.
This is in line with the 12-member group’s current output target, which it will review at its next meeting on November 27 in Vienna. “We are not seeing a clear picture of what the direction of price will be, even in November,” Mr El-Badri said.
Producers of tight oil from shale rock formations will suffer first from crude’s collapse because they need higher prices to keep pumping profitably, Mr El-Badri said. About 50 per cent of current shale output will be curbed if oil remains at current levels, he said.
“If the price is declining a lot of the investment will go out of the market,” Mr El-Badri said. “Deep areas, remote areas, many areas will be affected and this includes tight oil.”
Some members say they have been affected by oil’s collapse. Iran’s revenue from crude sales, the Opec member’s most important export, dropped 30 per cent because of the recent fall in global oil prices, President Hassan Rouhani said in remarks to the nation’s parliament that were published on Thursday by the Oil Ministry’s news website Shana.
Representatives of Opec remain divided over the need for action. The group’s output target should be cut to 29.5 million barrels a day, Libyan Opec governor Samir Kamal said by email on October 27. Conversely, Kuwaiti Oil Minister Ali Al-Omair said “there is no room for countries to reduce their production,” according to comments reported by state news agency Kuna on October 13.
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