Oil supply exceeds demand currently, but gap is narrowing
By Chen Aizhu
BEIJING, July 1 (Reuters) – The global market should see oil supply and demand in balance by 2017 though it will remain structurally well-supplied for the next couple of years, U.S. Energy Secretary Ernest Moniz said on Friday.
Speaking to reporters after meeting with Saudi Arabia’s Energy Minister Khalid al-Falih at the G20 energy meeting in Beijing, Moniz said the two men agreed that despite short-term production impacts, oil supply still exceeds demand.
“Unless there are big surprises we are still in a situation of more production than demand. The gap is narrowing as global demand grows slowly,” Moniz said.
“His (Falih’s) statement is that balance in supply and demand will probably be reached in the end of this year. That’s reasonable, but it could also go into next year.”
However, when that balance comes, there will still be large supplies due to historically high reserves, he added.
As prices recover to the $50 to $60 a barrel level, more drilling rigs will be deployed and more wells will be completed in the U.S., he said, after companies scaled back production as oil prices dived under $40.
“So structurally the market looks pretty well supplied, there is no reason to think there will be big changes over the next couple of years,” he said.
On oil policy, Moniz said al-Falih made clear that Saudi Arabia is looking to long-term price setting in the oil markets to follow markets and not quotas.
Moniz also said during the G20 meeting this week the U.S. advocated a timeline for ending subsidies for fossil fuels by the middle of the next decade or 2030, but the countries failed to reach a timeline for the subsidy phase-out.
Officials from the United Nations and European Union, plus 200 non-governmental organisations, urged the G20 this week to end years of talks and follow the Group of Seven industrialised nations by setting a date to end subsidies on coal, gas and oil.
With growing supplies of liquefied natural gas (LNG) from Australia and with the U.S. starting to export LNG, the indexing of LNG to oil prices is weakening which means there will be a more competitively priced spot market, he said.
That would benefit China which is looking to natural gas as an effective approach to cut emissions, Moniz said.
(Reporting by Aizhu Chen; Editing by Christian Schmollinger)