© Abhishek Deshpande
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The International Energy Agency forecast this month U.S. shale oil supply will help meet most of the world's new demand in the next five years, leaving little space for OPEC to lift output without risking lower prices. In your opinion, is there enough demand to go around for all oil exporters without significantly decreasing their prices?
The IEA was right to say that the U.S shale oil is increasing quite rapidly. However, the OPEC will continue to be a significant player at least until the end of 2013, while in 2014 and beyond the importance of the organization will decrease. At the last meeting in Vienna, a decision was made to keep the OPEC output unchanged till December. Later on, the decision would most likely be reconsidered as organization`s output is potentially dependent on such factors as, for instance, Iran. If Iranian oil comes on line and if the agreement on nucleon strategy with B5 nations is adapted, then OPEC and Saudi Arabia, in particular, would most probably reduce its output. It is important to stress that OPEC as well as its output is controlled by Saudi Arabia and at this moment, Saudi Arabia has no reason to reduce its output as there is lack of oil from Iran and also fluctuations on exports from Iraq. Eventually, if oil prices do reduce due to the excess oil in the market, then there is a high chance of OPEC reducing its production.
In addition, I expect shale oil output to rise in the upcoming year. However, OPEC does recognize the U.S. impact on the global demand and will definitely be proactive in terms of taking steps to reduce the supply in case it starts to affect the global oil prices.
Exports from the OPEC drive supply and demand for the European Union and as they shrink, oil prices will rise, leaving the Euro zone facing an energy supply problem. Do you expect the EU nations to import more oil from non-OPEC countries like Russia or Norway if OPEC reduces output?
To be honest, we are currently observing EU`s refineries working on excess capacity as production of oil within the EU exceed its demand. Moreover, refineries within Europe are shutting down as they are going into losses. Although, it is less likely that OPEC would have a greater impact on the Euro bloc since they have reduced their exports and currently are not importing as much oil as you would expect. Fewer imports are coming from one of the OPEC nations - Saudi Arabia, as they need to regain after decreased imports from Syria that was one of the key nations in the Middle East. However, decreasing exports from OPEC would not affect Europe that much as we think Europe will diversify its oil exporters.
Further, we do expect North Sea's output to increase in the upcoming years, as investments in this area are boosting. Thus, we will face an upward call for oil output in the North Sea for at least the next four to five years. If you look from that prospective, you do have some supply growth in that region. On top of that, in terms supply diversification, West Africa is one of the suppliers that need to consider new markets, as East coast of the U.S. significantly reduced its imports from West Africa. Thus, a large amount of crude oil around Africa and its West coast can potentially be used in case of import shortage by Europe.
What is your forecast for the oil prices for the short term and the long term?
Our forecast for 2013 is around 107 USD per barrel. However, we expect this price range to bounce and, therefore, we believe it would remain somewhere between 100 to 110 USD for barrel. Currently, we are looking at some fluctuations coming from Iran. In case Iran releases its oil exports or if there is a Treaty between Iran and Big 5 nations, there would be no supply that would push oil prices closer to the 100 range. At the same time, any other potential unrest in the Middle East can significantly raise oil prices to 105 – 106 USD per barrel.
Nevertheless, we are looking at an average of 107 USD per barrel that is lower in comparison to last year`s oil prices of 111 USD per barrel. We expect oversupply to put a cap on oil prices in the long term. However, we do believe that global economy will improve in 2014 and that would also boost oil demand which together with fiscal breakeven for OPEC nations should put floor under oil prices. Therefore we expect them to be in a range of 100 to 110 USD per barrel for the next couple of years.