Oil prices may stay depressed until summer due to weak seasonal demand even as Saudi Arabia’s strategy of curbing the output growth of rival producers might have started achieving tangible results, OPEC delegates told Reuters.
Delegates from the Organization of the Petroleum Exporting Countries and external experts are meeting at OPEC’s Vienna headquarters this week to discuss the producer group’s long-term strategy. Such meetings do not set output policy.
The talks arise as data from the United States showed a record drop in drilling rigs, prompting oil prices to jump above $50 a barrel on Friday as traders said they saw it as a sign that OPEC’s strategy was taking a toll on the U.S. shale boom.
“The low prices are affecting the investment of some companies in shale oil. This should affect the supplies in the longer term,” a delegate from a Gulf OPEC producer said.
“Prices are stabilising around $40 to $45, but the world economy is not very strong and stocks are too high.”
Two other OPEC delegates, one of whom is from a Gulf producer, said they could not rule out prices dropping to as low as $30-$35 due to weak demand combined with global refinery maintenance in the first and second quarters of 2015.
“Prices are supported now by winter and stockpiling,” one of the delegates said.
Another Gulf delegate said: “The general feeling is that prices will still remain lower than what we all want because of the excess of supply in the market. The expectation is that these stocks will not decrease before the first half of the year.”
“There are a number of good signs, for example the shutdown of some production in the U.S. and Canada. So it means that the policy decision made in the last meeting was the correct one, it’ll be slow, painful for some more than others but in the end effective,” that delegate said.
OPEC last November decided against cutting its production despite misgivings from its non-Gulf members, after Saudi Oil Minister Ali al-Naimi said the group needed to defend market share against U.S. shale oil and other competing sources.
The decision sent oil prices to what was a four-year low close to $71 a barrel. Crude later fell to a near six-year low of $45.19 on Jan. 13 – further than many delegates had expected – and was trading above $53 on Monday.
Publicly, OPEC officials including Secretary-General Abdullah al-Badri have started to express confidence that a bottoming out of prices and a recovery may be under way.
The talks on OPEC’s long-term strategy – which is updated every five years – continue on Tuesday. OPEC oil ministers, who decide the group’s output policy, are not scheduled to meet until June 5.