06:11 GMT +3 hours26 August 2016
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According to the economist, the trade-off between the two key oil producers would allow Saudi Arabia to dominate the energy market, while the United States would use lower oil prices to promote its political agenda.

Unexpected? ‘The Best Cure for Low Oil Prices are Low Oil Prices’

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There is clear evidence that oil prices are stabilizing and might even begin to recover. That’s according to the latest report by the International Energy Agency.

It said that lower oil output in the United States and other countries helped to curb the glut in the oil supply on the markets. In particular, OPEC’s output fell by 90,000 barrels per day in February due to production outages in Nigeria, Iraq and the United Arab Emirates.

Jim Krane, expert on Mideast/OPEC and Saudi market strategy, Wallace Wilson Fellow in Energy Studies at Rice University's Baker Institute for Public Policy, joined Radio

Sputnik to discuss the current state of the global oil market and its prospects.

“The best cure for low oil prices are low oil prices. As people start to take advantage of discarded oil and buying a little more of it some of the inventory disappears so that seems to be a part of what is happening. At the same time the producers are no longer willing to produce oil at such low prices, they start laying people off and then production starts to drop so we see a little bit of market balancing.”

Krane elaborated on what he means market balancing.

“People don’t really know what’s going to happen. There is a big question mark over production especially over shale production because the supply is so elastic. When prices recover somewhat these people who have been laid off and left the oil patch, all those guys will go back to work and shale price will increase.”

He further spoke about the Goldman report and the new source of supply in the US that doesn’t take the same kind of planning and huge investments and multiple year projects. “It is just about sending a few guys back into the field and they start producing oil again.”

The analyst spoke about the oil prices at the end of this year and what he personally thinks will happen.

“I feel that there will be some modest recovery as far as the oil prices are concerned. The longer they are low the more that stimulates demand and removes supply. If everything else remains roughly constant prices should start edging back up,” Krane said.

Related:
Out of Money: Saudi Arabia Shot Itself in the Foot by Dropping Oil Prices
Oil Prices Growing Amid Reports on Upcoming Output Freeze Talks
Signs of Hope: Four Reasons for Growing Oil Prices in Near Future
'Reasonably' High Oil Prices Important for Both Producers, Consumers
Tags:
oil market, supply, strategy, investment, production, shale oil, OPEC, Middle East, United States
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  • jas
    And we have to remember about the psychological warfare of the West. Yahoo Finance and Bloomberg and all the rest were trying to affect behavior. They knew the $15 oil and that it could stay until 2020 fear mongering was 100% horse s**t.
  • jas
    Just saw this on Mish's page and thought it was relevant. He has a nice chart about rig counts that seems to show some technical indicators. Capitulation is like a last gasp, maybe not technically the "bottom" but close.
    mishtalk.com/2016/03/11/record-low-us-rig-counts-rig-count-capitulation
  • Athanasios
    Oil prices are clearly on the way up. Oil futures prices have grown by about 25% from Feb. 11 to March 11 (From about $29 to about $39). This is no modest increase...
  • michael
    so let's now see how the game has changed.
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