The UAE Energy Minister Suhail bin Mohammed Faraj Al Mazroui on Wednesday defended Opec's decision not to cut production in the face of falling prices as Barclays came up with an upbeat forecast that oil price is likely to rise to $50 by the end of 2015 and increase to $60 in 2016.
Barclays corporate banking team said a price hike would be spurred by sustained doubling of growth in global demand of up to four million barrels per day.
"There is no doubt that the UK North Sea oil and gas industry is under pressure right now but we do feel that signs of relief are there, and the forecast for $60 oil in 2016 with oil demand growth above trend again is encouraging," said Walter Cumming, head of oil and gas at Barclays Corporate Banking, at a recent event hosted in Aberdeen.
Barclay's bullish forecast coincided with the optimism of an imminent oil price stability voiced by Al Mazroui at the 10th Annual GPCA Forum in Dubai.
Saying that he did not regret last year's Opec decision not to cut the production ceiling in the face of falling prices, the UAE Energy Minister said: "I am sure that the decision was right and I am confident that the market will stabilise. We are not regretting the decision we took, we had no option," he said.
The minister admitted that while it is painful for many producers around the world it doesn't mean that Opec needs to do something that is not sustainable.
Opec made a historic policy shift last November by refusing to cut production to prop up prices in a bid to defend market share. The group reconfirmed the strategy at a meeting in June. The group's ministers are set to meet next in Vienna on December 4 to decide on the production.
Barclays predicted that the expected increase in oil price would be spurred on by a sustained doubling of growth in global demand of up to four million barrels per day.
A group of experts gathered by Barclays Corporate Banking felt that there are growing signs of hope on the horizon, which may trigger an eagerly anticipated recovery.
The group's discussions pointed out significant differences between the oil crash of the mid-1980 and that of 2014-15. In the 1980's Opec's spare capacity was between 14 per cent and 16 per cent of global oil demand, which meant it was in a much stronger position to influence supply. Today, Opec's spare capacity stands at less than four per cent.
The bank noted that since Opec decided against reducing production in November 2014, global oil demand has recovered strongly, unlike in the 1980s. Since then, global demand growth rate has tripled to 2.1 million barrels per day, due mainly to the elasticity in price and consumer reaction to price, Barclays pointed out.
Barclays forecasts that the excess supply situation would continue throughout 2015 with Saudi Arabia producing close to record levels at 10.3-10.4 million barrels per day, while Iraq continues to be a strong supplier.
The recently lifted Iran sanctions could also affect supply, as the country is now open to the international oil and gas industry. However, the increased production activity in Iran is unlikely to start until Spring 2016 or later as the region still has 45 million barrels of oil in tankers which will be releases first. Only after that time will the country boost global supply through new production.
The US shale industry, with its lower cost base and rapid set up characteristics, has taken over from Saudi Arabia as the new swing producer. The sector is very reactive to the price of oil and can adjust its production reasonably quickly. Despite initial resilience, Barclays anticipates a significant reduction in the supply of US shale in the fourth quarter of 2015 as well as the first half of 2016.
"This is where we can expect the industry to see the real battle between global supply and demand take place," the bank said.
By Isaac John
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