25 October 2016, Lagos – The oversupplied oil market will be re-balanced earlier than expected if major crude producers implement a deal to cap output when they meet next month, the International Energy Agency chief said Tuesday.
Under current conditions, the IEA expects global output to exceed demand until the second half of 2017, Fatih Birol told journalists on the sidelines of an energy conference in Singapore.
“But we know that the producers are thinking of intervening in the markets. The OPEC and non-OPEC producers, if they intervene in the markets, this re-balance can be earlier than the second half of 2017,” he said.
In a surprise move, OPEC (Organisation of the Petroleum Exporting Countries) members led by oil kingpin Saudi Arabia last month agreed on a deal to trim production, sending crude prices surging.
The OPEC deal which aims to stabilise prices is the first to limit production since 2008 but details will only be determined during the group’s meeting on November 30 in Vienna.
Iran, Saudi Arabia’s bitter geopolitical rival, was exempted from the cuts as it is still ramping up production depleted by years of crippling Western economic sanctions lifted only in January.
Production has outpaced demand over the past two years, with the resulting supply glut hammering prices from highs of more than $100 a barrel in June 2014 to near 13-year lows below $30 in February this year.
Prices are currently hovering above $50 a barrel ahead of next month’s OPEC meeting.
But some analysts say Iraq’s recent insistence that it should also be exempt from the cuts could derail implementation of the deal.
Iraq’s oil minister Jabbar Al-Luaibi said Sunday in Baghdad that his country should not participate because it is waging a war against Islamic State militants.
“There is growing scepticism that OPEC will be able to cut a deal. Iraq’s oil minister has insisted that the country remain exempt from a freeze and aims to increase production,” said Alex Furber, an analyst with CMC Markets in Singapore.
“The Iraqi oil minister’s comments were in many ways the big story overnight for investors as they worry that an OPEC deal is harder to put together than the Saudis and the Russians are suggesting,” said Greg McKenna, chief market strategist at Forex broker AxiTrader.
McKenna said, however, that continuing talks between Russia and OPEC kept hopes alive for an output cut.
“Oil is still hanging tough and I’m still in the camp (which believes that) a deal will be nutted out and inked in November,” he said in a note.