News Analysis: Will global oil glut rebalance itself?

Thepricesofcrudeoilaremostlikelytostayatrelativelylowlevelsinthenearfutureastherearenosignsofmajorproducerstakingactionstoeaseasevereoilglutyet.Nevertheless,someenergyofficialsandanalystssaidthattheyexpecttheoilgluttograduallyrebalanceitselfinto2016,thoughthehighoilpricesseeninthepastmaynotberecoveredsoon.

Observerssaidthatthelowoilpriceshaveincreasedfiscalpressureonoilproducerswhilebenefitingoilimporters,andthattheymaybeaboonforthestillfragileglobaleconomy.OnTuesday,theWestTexasIntermediateforFebruarydeliverymoveddown97centstosettleat30.44U.S.dollarsabarrelontheNewYorkMercantileExchange,whileBrentcrudeforFebruarydeliveryshed69centstocloseat30.86dollarsontheLondonICEFuturesExchange.

Internationaloilpriceshavebeentrendingdownwardsince2014assomeoftheoilproducersincreasedtheiroutputandmembersoftheOrganizationofthePetroleumExportingCountries(OPEC)floodedtheglobalmarketwithcheapcrudeinhopesofdrivingoutcompetingsupplies.

SpeakingattheSeventhGulfIntelligenceUAEEnergyForummeetinginAbuDhabionTuesday,UnitedArabEmiratesEnergyMinisterSuhailbinMohamedal-MazrouiinsistedthatitisunfairtoaskonlyOPECtocutitsproductiongiventhatanestimatedincreaseof2.7millionbarrelsofperdayinglobalsupplyhavecomefromcountriesoutsidetheoilcartel.

Hesaidthatthemarketshouldbeallowedtorebalanceitselfbasedonsupplyanddemand,whichshouldalsobeOPEC'sstrategy.Theglobaloilsupplyinchedupto96.9millionbarrelsperdayinNovemberlastyear,whichwas1.8millionbarrelsperdayhigherthanthesupplyayearearlier,accordingtotheInternationalEnergeyAgency(IEA).

Separately,theUnitedStatesEnergyInformationAgencyinitslatestreportputstheglobaloilsupplyin2015at95.71millionbarrelsperdayonaverage,comparedwiththeconsumptionof93.77millionbarrelsperday.Itexpectstheoilgluttopersistthrough2016.

OPEChashadanoutputtarget,whichwaslastsetat30millionbarrelsperday.However,inrealitytheOPECproductionhasbeenrunningatanaverageof31.7millionbarrelsperday,withSaudiArabiaandIraqpumpingatornearrecordrates,theIEAsaid.

ThepressureonworldoilpricesalsocomesfromtheexpectationthatthesupplyfromIranmayhitthemarketthisyearandconcernsthatstockbuildingmayslowascountriesneartheirstoragecapacitylimits.ThestrongU.S.dollarisseentodrivetheglobaloilpriceslower,too,asitmakesoilmoreexpensiveforbuyers.

AdamLongson,headofenergycommodityresearchatMorganStanley,saidthatheseesitpossiblefortheoilpricestodiptoaslowas20dollars."YoucanexplainmostofitbytheU.S.dollar,"hesaid,referringtothefluctuationsinglobaloilprices.

OPECseemsstilldeterminedtomaximizeitslow-costsupplysoastodriveouthigh-costnon-OPECproduction,regardlessofprice.Therearesignsthatthestrategyisstartingtowork.Theyear-on-yeargrowthinnon-OPECsupplyhasfallento0.3millionbarrelsperdayinNovemberfrom2.2millionbarrelsperdayatthestartof2015.ThemomentuminshaleenergyinvestmentintheUnitedStates,whichhasbeenseenasagamechanger,hasshownsignsofweakening,too.Initslatestreport,theU.S.EnergyInformationAgencysaidthatU.S.crudeoilproductionaveragedanestimated9.4millionbarrelsperdayin2015,anditisforecasttoaverage8.7millionand8.5millionbarrelsperdayin2016and2017,respectively.

"Thecrudeoilover-supplyisstillexpectedtorebalanceinto2016,"BarnabasGan,aneconomistattheOCBCBank,saidareport,projectinginternationaloilpricesof50dollarsperbarrelattheendof2016.

Inthatcase,theoilpricesarenotlikelytorecovertheirpasthighsintheforeseeablefuture,giventhattheshalefirmsmaystartaddingnewwellsoncetheoilpricesgetabovetheirbreak-evenpricesofaround60dollars.Ittakesasfewasoneweektodrillanewshaleoilwell.Thelowoilpriceshaveincreasedfiscalpressureontheoil-dependentcountries,includingOPECmembers.Russia,too,suffersacontractioninitseconomy,largelyduetolowoilprices.

TheOCBCBanksaidthelowoilpriceshavebenefitedtheenergyimportersthataccountforamuchlargershareofworldeconomy."Despitetheabsenceofhigherglobalgrowthinthelastyear,therearestillarguablyunambiguouswinnersfromthefree-fallbehaviorinoilprices,"Gansaidinareport,namingIndia,SouthKorea,JapanandChinainAsia,andItaly,SpainandGreeceinEurope.