New trends in the commodities are generated by the very beginning of autumn. Meanwhile, oil authorities and market intellectuals predicted the prices around $50 for next six months. There are three reasons for the trends, which influence short-term movements and long-term plans as well.
- The early autumn usual drop in demand, according to the forecast of all major banks, such as World Bank and Goldman Sachs.
Every year the oil prices calm down in September. This year, investors will be watching carefully the Fed policy, because Janet Yellen has promised to push interest rates higher. Also before the meeting of the IEF in Algeria global markets will keep from the rush in hope to see some “nice results” and recognize the OPEC policy.
- The expectation for consensus among oil producers and consumers at the forthcoming International Energy Forum in late September.
Analysts expect good news from the International Energy Forum (IEF) on September 26 – 28 in Algeria. It turns out OPEC will be ready to discuss seriously conditions for freeze output. Why?
First of all, oil production in Saudi Arabia hit a record 10.67 million barrels per day in July. The summer volume of a daily output has increased the January level by 450,000 barrels. This ceiling is more attractive for the kingdom than the previous one. Although Riyadh has announced “the fresh initiative” to rebalance the budget, selling 5% of Aramco in anticipation of a post-hydrocarbon age. It turns out Saudis have no intention to step back and give way to their market share.
Secondly, Iranians have confirmed they will reach 4 million barrels per day by the end of September. Tehran might find attractive the freeze of the output to demonstrate “good will”. Since Iran already has come so close to the target and is going to restore the pre-sanctions level, the state interests in pumping actively without new investment in the industry, getting a breathing space thanks to the freeze.
- The decrease of investment in research and production from new oil fields all over the globe.
Andrew Latham, Wood Mackenzie’s vice president for global exploration, mentioned that spending on exploration has been cut more than twice from 2014. In 2015 just 2.7 billion barrels flowed to the markets from new fields, the smallest amount since 1947. This year drillers found 736 million barrels as of the end of last month. Producers prefer to sell barrels from inventories before developing new oil fields. The intrigue hides in the estimation of U.S. Energy Information Administration; they foresee expansion of global oil demand to 105.3 million barrels in 2026. Even with the end of the hydrocarbon age, the demand will rise by 10 million barrels in 10 years.
So there are opportunities for the producers in the long term, however, there will be another world in 2026. These days to survive they need to accept $50 per barrel and to find a new balance between supply and demand in the short term.