$70 TO $80 OIL BY END OF 2015
Exclusive: Arab OPEC sources see oil back above $70 by end-2015
reuters.com 4:52am EST By Rania El Gamal
ABU DHABI (Reuters) - Arab OPEC producers expect global oil prices to rebound to between $70 and $80 a barrel by the end of next year as a global economic recovery revives demand, OPEC delegates said this week in the first indication of where the group expects oil markets to stabilize in the medium term.
The delegates, some of which are from core Gulf OPEC producing countries, said they may not see - and some may not even welcome now - a return to $100 any time soon. Once deemed a “fair” price by many major producers, $100 a barrel crude is encouraging too much new production from high cost producers outside the exporting group, some sources say.
But they believe that once the breakneck growth of high cost producers such as U.S. shale patch slows and lower prices begin to stimulate demand, oil prices could begin finding a new equilibrium by the end of 2015 – even in the absence of any production cuts by OPEC, something that has been repeatedly ruled out.
"The general thinking is that prices can’t collapse, prices can touch $60 or a bit lower for some months then come back to an acceptable level which is $80 a barrel, but probably after eight months to a year," one Gulf oil source told Reuters.
A separate Gulf OPEC source said: "We have to wait and see. We don't see 100 dollars for next year, unless there is a sudden supply disruption. But average of 70-80 dollars for next year – yes.”
The comments are among the first to indicate how big producers see oil markets playing out next year, after the current slump that has almost halved prices since June. Global benchmark Brent closed at around $60 a barrel on Monday.
Their internal view on the market outlook will provide welcome insight to oil company executives, analysts and traders, who were caught out by what was seen by some as a shift in Saudi policy two months ago and have struggled since then to understand how and when the market will find its feet.
NOT AGAIN
For the past several months, Saudi officials have been making clear that the Kingdom’s oft-repeated mantra that $100 a barrel crude is a “fair” price for crude had been set aside, at least for the foreseeable future. At the weekend, Saudi Oil Minister Ali al-Naimi was blunt when asked if the world would ever again see triple-digit oil prices: “We may not.”
Saudi Arabia, the world’s biggest exporter – and its close Gulf allies within the Organization of the Petroleum Exporting Countries (OPEC) – say it’s time for others, whether that is countries like major exporter Russia or U.S. shale drillers, to slow down; OPEC can no longer slash output, ceding market share, to spare them a downturn.
As Naimi told the Middle East Economic Survey (MEES) in an interview this weekend: “It is not in the interest of OPEC producers to cut their production, whatever the price is.”
Without OPEC to defend prices, oil entered a free-fall, but most of OPEC’s members are holding fast.
At this point, intervening in the market would simply invite new rivals to carry on pumping crude, eroding OPEC’s market share without any guarantee of a sustained price recovery, another Arab oil source told Reuters on the sidelines of a meeting in Abu Dhabi of the Organization of the Arab Petroleum Exporting Countries (OAPEC).
"Every time prices fall, we would be asked to cut," the source said.
The second Gulf OPEC source reiterated that OPEC would not cut alone. Non-OPEC producers such as Russia, Mexico, Kazakhstan and "anyone producing more than one million barrels per day" should also cut or at least freeze their output if they wanted a stable market and better prices, the Gulf OPEC source said.
NO PRICE TARGET
To be sure, there is no suggestion that OPEC is targeting a specific price, or would want to do so. The group hasn’t had a formal price goal in about a decade, and Saudi Arabia has long maintained that it is only seeking price stability, not a set level.
But it offers a convenient metric at a time when traders are struggling to figure out where and when markets will settle down.
Asked about market signals OPEC is looking for to decide on whether the market is stabilizing or not, irrespective of the price, Naimi said: "The signals need time, one year, two years, three years. There is not one signal that we look to and say that's it... but for sure those who are the most efficient producers are the one who would rule the market in the future."
Iraqi oil minister Adel Abdel Mehdi told Reuters in an interview on Monday he thought prices would stabilize now at about $60 a barrel but could rise to over $70 by mid-next year.
"I believe that market has started to stabilize itself now," Falah al-Amiri, head of Iraq state oil marketing SOMO told Reuters in Abu Dhabi.
"The future for next year, I don't think there would be much optimism in the market that the price would go to $80 or above. But I don't even think prices would reach $80," said Amiri, citing a resilient shale oil production to current prices.
(Editing by William Maclean, Will Hardy and Jonathan Leff)
Views: 1332
Replies to This Discussion
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Permalink Reply by Joe Aldridge on -
You are paying less for oil products so he's saying that amounts to a tax break. I would agree.
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Permalink Reply by tc on
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After tax cuts, the price of crude has the greatest variable effect on the US consumer's pocketbook, so economist usually equate large price movements of crude with taxes.
http://www.theguardian.com/business/2014/dec/11/lower-gas-prices-eq...
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Permalink Reply by Steve P on
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as much as i am reluctant to take on the big brains at Goldman Sachs, calling a decline in gasoline prices a "tax cut" is non-sense. taxes are levied by governments, and i'm not referring to the the Saudis. when the price of crude, and gasoline, went up, I never heard that referred to as a "tax increase.". if there is a bumper wheat crop and the price of bread and Wheaties goes down, that's not a tax cut; and vice versa when the price of wheat goes up.
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Permalink Reply by P.G. on
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Kind of hard thinking of the Saudi's as the stewards of a stable world economy with crude prices being held around a hundred bucks for the last several years..
It's just now they are beginning to get cut out of all of the share they've enjoyed and are throwing a tantrum to turn things around.
If they can control prices, which apparently they can, who can say they won't cycle the markets to get the maximum return on as much of their oil as they can by staying ahead of the price curve the price/cost sensitive producers will be chasing? Kind of like those large investment firms who can run commodity prices up and down trick the little investors into buying high and selling low..
Once they shake out the competition with low prices, and demand increases, they could cut back and drive prices back up and the cost sensitive producer would jump back into the game and the Saudi's would start selling tons of supply and grabbing those high dollars before the next price collapse...then it starts all over...
Selling oil cheap to shake out the competition would be just the cost of doing business..Just some fun speculation here...no body really knows what's going to happen.
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Permalink Reply by P.G. on
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So lets say they did cycle prices like that. After they shook out the competition and then drove the prices back up, how long would it take the competition to get back into the game?
How long, say time wise, would cycles take or last, prices going from low to high back to low..?
What kind of average could they come out with over the long haul with such a strategy?
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Permalink Reply by Skip Peel - Mineral Consultant on
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The Saudis are not defending the price, they are defending their market share. They have stated numerous times that they thought crude was priced artificially high owing to speculative trading. The Sauds don't need $100/barrel. It only costs them about $5/barrel to produce. It is easier to make less per barrel than it is to replace market share. The Sauds would be happy to cut production if other major producing companies would agree to do the same.
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But that can't happen because the US is causing the glut. In the last year alone the US has increased production by 1.1 million barrel per day. Even with falling prices since July1 to Nov. 30, the US increased production by 641,000 barrels per day. Read the article below to see some reasons on why the US is not cutting production, besides the legal reasons.
Then there is the China "dark shadow", China has been the biggest growth user of crude increasing consumption over 6.5% each year between 2009-13. But now people are just guessing how much China consumption will grow next year with ranges of 1.1% to 3.4%, the difference between these percentages equal tens of millions of barrels of crude.
http://www.wsj.com/articles/oil-companies-predicament-who-should-cu...
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Permalink Reply by Skip Peel - Mineral Consultant on
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The less oil and liquids produced, the less associated gas in the market. I'm beginning to see some projections. The one yesterday was for a least 2.5 BCF/D reduction for 2015. The more important metric however may turn out to be reduced service costs.
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Permalink Reply by Skip Peel - Mineral Consultant on
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US production will hold up just fine for the energy companies with the better rock and modest debt. They could conceivably produce for years at $50/barrel. That was the point of my earlier reply. There is wide variation in the vulnerability of specific companies to a prolonged low price cycle. Those that are highly leveraged and have high F&D costs are in trouble right now. You will see a number of them selling off "non-core" assets to generate cash. Needless to say it's not a good time to sell.
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