Yemisi Izuora
The Executive Director, IEA, Fatih Birol, predicts that oil markets will witness significant volatility in prices this year.
He says that the interplay between Middle East oil producers and high cost oil producers will result in price rebalancing in first half of of the year.
Birol, who spoke to CNBC-TV18’s on the side-lines of The World Economic Forum in Davos, said he expected oil prices to shoot up in the near term given Saudi Arabia and Iran stick to their production cut agreements.
However, he added market forces will come to play a role subsequent to rising prices, which in turn might result in higher supply again putting downward pressure on prices.
In November 2016 Saudi Arabia and Iran at an Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna pledged to remove 1.2 million barrels a day from global oil production, since then crude oil price has been on the uprise.
“We expect a few surprises in our report. The first one is oil demand growth is coming stronger. Among other reasons, a bit of recovery in Europe we see in the oil demand growth.
India continues to be strong in terms of demand. But the news is the US oil production which declined last year in 2016, now reversing the trend and 2017, this year, US production is going to increase significantly. And this will give a different dimension to the oil market discussions” he said.
Speaking further, Birol said, Last year, when we met here, the prices were USD 28 per barrel. And this year, we discuss it at times that this is not a price that is sustainable and this indeed, we came to USD 55-56 per barrel. And if the current market dynamics are such, as I told you, increase of demand, 1.4-1.5 million barrels per day, if the OPEC countries implement what they agreed, we may well see a rebalancing of the market in the first half of this year. But, what will happen in the second half will be depending on the level of additional production coming out of the US.
He said there will be an interplay between the Middle-east producers and the high cost places such as US and Brazil which means that the market will enter a period of greater oil price volatility, adding that it is important for countries like India because it will affect the trade balance and the inflation and therefore economic policies need to take in account the greater volatility in the oil prices, ups and downs and swings.
Though Birol said he could not forecast the price, but he expected that in case of producing countries sticking to their agreements, there may be a room to see the prices higher for some time to come, higher than these levels.
“But, the market response may well be strong to that which means these highprices bringing new supplies from the US, from Brazil, from other countries which pour in the markets and put downward pressure on the prices” he said.
On compliance with what the OPEC has announced in terms of the output cut, Birol noted that if they stick to their agreements, what they have decided together with some non-OPEC countries like Russia, it would continue to put upward pressure on the prices and as such, the market will see in a few months, the stocks diminishing and a rebalance of the markets.
On supplies from Iraq, Nigeria, the EIA chief said, “Nigeria is going through difficult times such as Libya, there is some cuts as a result of internal issues. So is Iraq.
In fact, when we look at the last few years, together with the United States, Iraq was another centre of growth of oil supply.
But, Iraq is going through difficult days, internally today.
But despite it increasingly the production, maintain the production which is very important because Iraqi government needs revenues in order to address some of the internal domestic issues, geo-political issues which are very serious.
So, as such, the news which will come from Nigeria, Libya is because of the domestic oil supply shortages, plus the geo-political events in Iraq should be watched very closely.