Opec’s president said that he expects oil prices to improve as demand picks up in the second half of this year.
In a rare move aimed at reassuring the market, the oil group’s current president, Qatar’s energy minister Mohammed Al Sada, released a letter through Opec, in which he noted that “higher oil demand is expected in the third and fourth quarters … in preparation for the approaching winter season in the northern hemisphere”.
Mr Al Sada was seeking to reassure those worried about the recent drop in oil prices after a strong recovery in the first half.
The run-up had pushed the world benchmark North Sea Brent crude futures from a low below US$28 per barrel in late January to above $52 in early June, but persistently high crude inventories and rising petrol stocks knocked it back below $42 by early August.
Brent was up 69 cents at $44.97 in afternoon trading.
“The recent decline observed in oil prices and the current market volatility is only temporary,” Mr Al Sada said. “These are more of an outcome resulting from weaker refinery margins, inventory overhang – particularly of product stocks – timing of Brexit and its impact on the financial futures markets, including that of crude oil.”
The Opec president said there was a risk that the huge drop in industry investment would lead to a shortfall in supply.
Last month, the industry consultants Wood Mackenzie estimated that the 56 major oil companies it tracks have cut this year’s exploration and production spending by 49 per cent, or $230 billion, compared with spending levels two years ago. Other industry estimates have put the total cut in oil and gas development investment worldwide in excess of $400bn.
“Opec continues to monitor developments closely, and is in constant deliberations with all member states on ways and means to help restore stability and order to the oil market,” Mr Al Sada said.
He noted that an informal meeting of Opec oil ministers was scheduled to take place on the sidelines of a forum in Algeria from September 26 to 28, although he did not say what if any action the ministers might be discussing.
So far, Saudi Arabia, which has been the principal driver of the laissez-faire policy of the past two years, has shown no inclination to change course.