© Richard Mallinson
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I think the likelihood of a deal among the OPEC producers is low, though we have not ruled that out entirely. The reality is that they failed at the Qatar meeting in April and at various other attempts throughout the first half of the year to reach a compromise that includes all the key members, in particular, Saudi Arabia and Iran, and I think all of those same problems still exist.
US crude oil inventories expanded for three consequent weeks in July, the World Bank slashed the 2016 global growth forecast to 2.4%, the recent statistics from the US, China and Japan indicate a possibility of an economic slowdown, which, in turn, are not favouring oil prices. To your mind, what factors besides the above stated will determine the performance of the commodity in the near future?
I take a slightly different view of fundamentals. When we look at oil demand growth this year, it has been relatively strong. There are concerns about the macroeconomic outlook, but we have seen and are still seeing healthy demand growth from many regions.
On the supply side, what is really important is that non-OPEC supply is falling dramatically because of lower investment not only in the US but in other parts of the world as well: China's oil production has fallen below 4 million barrels a day; we have seen places like Mexico and Brazil recover from big declines. All of these are helping to erode the oversupply in the market that has been such a weight on prices for the last two years.
In terms of US inventories, one of the reasons those have been going up, which is unusual for this time of the year, is because imports into the US have been very high, offsetting the declines in domestic production. However, it means that the oil coming into the US is coming from other parts of the world; therefore, less visible regions are actually reducing the amount of oil in storage. So, on the global basis, fundamentals are improving and that should support further increases in prices.
Where do you see oil prices in the short and long term?
In the next month or so, we will continue to see volatility, which I think is linked not only to headlines about OPEC talks, but also short-term factors such as refinery maintenance and margins. Towards the end of the year, I believe prices will have moved higher into the high 50-ies or even past $60 a barrel; and then I expect the recovery to continue in 2017 because the market will be progressively tightening.