Oil seen above $70 by end-2015

Opec hopes economic recovery will spur fresh demand; remote prospects for output cut

By Rania El Gamal (Reuters)

Published: Wed 24 Dec 2014, 10:41 PM

Last updated: Fri 3 Apr 2015, 9:51 PM

Abu Dhabi: 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 stabilise 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 US 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 said.

A separate source said: “We have to wait and see. We don’t see $100 for next year, unless there is a sudden supply disruption. But average of $70-80 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. 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.

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. 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 and its close Gulf allies within Opec say it’s time for others, whether that is countries like major exporter Russia or US shale drillers, to slow down; Opec can no longer slash output, ceding market share, to spare them a downturn.

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 Organisation of the Arab Petroleum Exporting Countries.