Oil prices have started to stabilise around $60 a barrel in past weeks and will continue to firm up, while crude demand will grow stronger, an adviser to Saudi Arabia’s oil minister said on Sunday.
The comments by Saudi oil adviser Ibrahim al-Muhanna suggested that the top oil exporter sees no need to reverse its policy of allowing the market to correct itself without cutting output, despite the steep price drop since June last year.
Kuwait’s OPEC governor said last week that OPEC was likely to extend its current production policy at the June meeting, in the first public comment on what will be a crucial decision determining the direction of global oil prices in the second half of this year.
It is still too early to say if OPEC will keep its output ceiling unchanged when the group meets in June, Muhanna said, but he added that he was optimistic about crude oil demand growth and expected future supply to stay “healthy”.
“None of us know the future. Once the conspiracy theories lost their traction, serious commentators went back to fundamentals and the price started to stabilise around the $60 mark seen in the last few weeks,” he said at an energy conference in Doha.
“With this in mind, I have reason to be optimistic. I’m confident that demand will be stronger. Supply will remain healthy and prices will firm.”
The recent drop in oil prices was due to expectations and speculation, not market fundamentals, Muhanna said, adding that Saudi Arabia remained committed to a stable oil market and stable oil prices.
Saudi Arabia was the driving force behind OPEC’s recent shift in policy at its last meeting in November, when the group chose not to cut output and instead to fight for market share.
Since then there has been some grumbling – and sometimes public criticism – among both OPEC members and other producers outside the group that the November decision might not have been correct.
Global oil prices rebounded earlier this year, pushing Brent crude back above $60 a barrel for the first time since December, which may have led the Saudis to feel vindicated. However, Brent settled near a one-month low below $55 on Friday, after sliding nine per cent on the week.
Muhanna said that before the November OPEC meeting, Saudi Arabia met with Russia, Mexico and Venezula to discuss a joint production cut, but “none of the producers were prepared to cut”.
OPEC has said it believes global oversupply amounting to as much as 1.5 million barrels per day will evaporate as oil demand picks up and U.S. oil production growth slows as companies drill fewer wells.
However, should U.S. oil producers prove more resilient than OPEC thinks, global oil oversupply could persist and become even larger if Western powers and Tehran reach a nuclear deal this year that lets Iran increase its oil exports.