OPEC supply cut will have little impact on over-supply
By Alissa de Carbonnel
BRUSSELS, Nov 21 (Reuters) – The boost to oil prices from any potential OPEC agreement to curb supply when it meets next week will have only a short-term impact, Statoil‘s chief economist said on Monday.
Oil prices rose to their highest in three weeks on Monday, catching a lift from a weaker U.S. dollar and from cautious money managers, as OPEC appeared to be moving closer to agreeing an output cut at its Nov. 30 meeting.
“If the sentiment in the market now is we are moving toward a deal then most of the positive impact of any kind of deal might have been taken out in the market before we get there,” Eirik Waerness, the Norwegian oil major’s chief economist, told Reuters.
“Then you let pass a couple of weeks and we are back to the normal variations.”
While he said a deal looked likely, he played down its impact on over-supply in a market that Statoil expects to see tighten, pushing up prices, by 2018.
Waerness said one reason for progress toward an OPEC deal is a flattening out of production in Iran, which is seeking exemptions from the deal as it tries to regain oil market share after the easing of Western sanctions in January.
More investment is likely needed for Iran to increase its production significantly, said Waerness, who was in Brussels to speak at the local launch of the International Energy Agency’s (IEA) World Energy Outlook.
Difficulties in Russia in increasing output – among the world’s highest – have also influenced its readiness to freeze production if OPEC does so, Waerness said.
“Russia is running at record high production,” he said. “That’s a promise that they might have had to make anyway,”
But Waerness said OPEC’s influence was limited to at most 500,000 barrels per day or half a per cent of global production, forecasting growing global demand outstripping the decline in production.
“The demand increase is going to eat up the quota reduction in OPEC within half a year,” Waerness said.
A potential oil price rise will lead to more drilling for U.S. shale oil, with a lag of about nine months, the IEA said on Monday.
“We are seeing shale oil at around $60 or so, for a big chunk of it to be profitable, and we may well see it come to the market and provide more oil to the markets,” IEA chief Fatih Birol told Reuters at a conference in Brussels.
(Reporting by Alissa de Carbonnel; Additional reporting by Robert-Jan Bartunek; Editing by Adrian Croft)