IEA's View | Russell T. Rudy Energy LLC
Apparently, the International Energy Agency’s (IEA) forecast for oil prices depends on how far you look into the future. According to a recent article in “World Oil”, Fatih Birol, the agency’s executive director, sees the answer differently depending on timing.
Oil prices responded favorably after the OPEC meeting on September 28, when producing nations agreed to cut production back to 32.5-33 million barrels of oil per day. However, this was an agreement in principle and individual production limits had not been set. Several nations, such as Iran and Iraq, insisted on being exempt from production cutbacks, and prices retreated. However, Iraq now seems more sanguine toward sharing part of the burden of reduced output and even Iran is sounding conciliatory. This will lead to short term prices in the $50 per barrel range. If OPEC actually agrees to cut back production at its November 30 meeting in Vienna, and Russia goes along, prices could stabilize or even reach $60.
However, Birol sees $60 oil as the stimulus for increased output by U. S. shale operators which would put downward pressure on prices within the next nine to twelve months. “Many people expect a freeze or a cut from the Vienna meeting. But we should also think about the next steps after the possible cut or freeze.” Consequently, for the intermediate term, prices might drop back to current levels.
However, for the long term, Birol points out that since the oil price collapse in 2014, investments in exploration and production have declined, which could lead to future shortages and higher prices. “This is the first time in the history of oil that investments are declining for three years in a row. As a result, we may see bigger difficulties in a few years time.”
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/11/24/oil-price-hike-from-opec-deal-may-snuff-itself-out-iea-says .
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