The next OPEC meeting to be held in June will unlikely change the situation on the oil market, oil markets analyst, director of Downstream Consulting at IHS Energy Spencer Welch believes.
“Iran will still be trying to increase production and so won’t agree to a freeze and so Saudi Arabia unlikely to take part in freeze and therefore freeze unlikely to happen,” Welch told Trend.
“It is very unlikely that a freeze will happen now before the market naturally comes back into supply and demand balance,” he added.
The last meeting of oil producers in Doha ended without reaching any agreement. The talks on oil output freeze collapsed after Saudi Arabia surprised the group by reasserting a demand that Iran also agrees to cap its oil production.
Many analysts believe that even if the agreement to freeze output on January level had been reached it would have had little impact on the oil prices.
“In January OPEC members were pumping flat out, so any freeze would have been at maximum production levels, hardly a recipe to support the oil price,” Sam Barden, the director of Wimpole International, an energy market development company told Trend.
With regard to the perspectives for re-balancing of oil market, Welch said that IHS expects the oil market to rebalance supply and demand in the third quarter of 2016 for the first time in more than two years.
“In this oversupply period around one billion barrels of oil has been put into storage. Supply is reducing, particularly in the US, and oil demand is increasing steadily. The third quarter is typically the peak demand quarter of the year, and this is the point at which we expect the market to rebalance,” Welch said.
Secretary-General Abdallah El-Badri has recently said that he expects re-balancing of oil market by the end of 2016-early 2017. He said that the overproduction is the only problem now. “If we solve this problem the market will be balanced,” he said.
At the same time the International Energy Agency (IEA) expects the oil market to come back into balance from oversupply by next year.
“This year, we are expecting the biggest decline in non-OPEC oil supply in the last 25 years, almost 700,000 barrels per day. At the same time, global demand growth is in a hectic pace, led by India, China and other emerging countries,” the chief of EIA Fatih Birol said.
Welch said that the reason for the decrease is the low oil price, economics are controlling the market, restoring the supply and demand balance, as OPEC intended after their historic November 2014 meeting.
“The low price means that projects are being delayed or cancelling, drilling has reduced and production is starting to decline, particularly in the US,” he said.
Welch said the US production is currently around 9 million barrels per day down from a peak of 9.7 million barrels per day in April 2015.
IHS expects the US production to reach a low of 8.5 million barrels per day in third quarter 2016.