Oil Bound to Go Up: 'The Key Issue is Not About Output, It’s About Demand'

© AP Photo / Vahid SalemiIranian oil technician, right, and coworker work at the oil separator facilities in Azadegan oil field, some 480 miles (800 kilometers) southwest of the capital, Tehran, Iran
Iranian oil technician, right, and coworker  work at the oil separator facilities in Azadegan oil field, some 480 miles (800 kilometers) southwest of the capital, Tehran, Iran - Sputnik International
The oil market will balance itself in 2017 even if producers don’t take any measures to help it recover, Saudi Energy Minister Khalid al-Falih said on Sunday as oil prices fell more than 3 percent on Friday and continued to tumble on Monday. Radio Sputnik discussed the situation with Marc Ostwald, Global Strategist at ADM Investor Services.

“The turn of events, particularly on Friday when Saudi Arabia pulled out of the negotiations between OPEC and non-OPEC producers was a bit of a game-changer. It was quite surprising to see the sharp change in the Saudis’ attitude between June and September when an agreement was reached in Algeria and at the very last minute we see a reversion,” Ostwald noted.

He said that it was more about regional power politics between Saudi Arabia, Iran and Iraq, rather than about the energy market.

“The Saudis want to force Iran and Iraq to do their fair share in any cuts,” Ostwald added.

The Saudi Energy Minister’s statement came after Riyadh, the de-facto leader of the Organization for Petroleum Exporting Countries (OPEC), called off a meeting on Monday between oil producers.

In this Wednesday, June 8, 2011 file photo, sun sets behind an oil pump in the desert oil fields of Sakhir, Bahrain - Sputnik International
Saudi Arabia Calls on Non-OPEC States to Decrease Oil Production
The drop in prices comes as oil producing countries, OPEC and non-OPEC members, cannot agree on the output cut in order to resuscitate the market. The disagreements center on who should curb production and by how much to trim the oil glut, which has resulted in a more than 50 percent decrease in prices.

“There were clear signs that the oil producing countries were willing to negotiate something, even if it was just a small cut. I think that we’ve got to the stage now where they can actually agree on a production cap,” he said, adding, however, that many countries, which had been forced to cut output due to terrorist activity or civil war, were now willing to return to the market.

Oil production. - Sputnik International
Iranian Oil Minister Optimistic About OPEC Reaching Oil Output Agreement
“They are looking at the prospect of production being increased next year both in the OPEC region and in other places, including Russia.”

When asked about US shale oil’s share in this equation, Marc Ostwald said that if oil prices reach 55 dollars and above then there will be more shale oil coming to the market.

“I think that the key issue here still is that it’s not really about the output, it’s about demand, which is going to pick up and if it does, then you have a much better backdrop. There are reasons to be optimistic,” he added.

When asked about the situation in 2017, Marc Ostwald said that even through in the short run he expects oil to go down to 40 dollars a barrel, with corporates are looking at a higher dollar and China looking at lower yen and reporting a very low level of inventories, they will probably be chasing oil to increase their inventories to make sure that they are not caught up by rising oil prices and a higher dollar.

The oil glut was sparked when Saudi Arabia began to oversupply the market, in order to drive out US shale oil companies from the market.

Despite negative forecasts many analysts say that there will be some form of an output cut when OPEC and non-OPEC members meet in Vienna on Wednesday.

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