Oil market oversupply real, prices may reach historic low | Lao Tribune

Oil market oversupply real, prices may reach historic low

The oil market will remain oversupplied in the near term and the potential to test the 1999 lows of $9 per barrel is very real, Sam Barden, the director of Wimpole International, an energy market development company believes.

“Not only is there a lack of above ground storage globally for oil, but there is a glut in shipping. That is to say, to many cargoes and not enough tankers,” Barden told Trend on April 19.

In the near term, oil will definitely trade below $25 per barrel.

Oil prices are up Tuesday as the markets continue to grapple with the fallout of the Doha production-talks fiasco, the Wall Street Journal reported.

Oil producers on Sunday in Doha failed to reach a deal to freeze oil output. The talks collapsed after Saudi Arabia surprised the group by reasserting a demand that Iran also agrees to cap its oil production.

Barden said that there was never any chance of a production freeze agreement in Doha at the weekend, and the resulting disagreement between members was fully expected.

“The reality was that OPEC members wanted to freeze production at January levels. Firstly, in January OPEC members were pumping flat out, so any freeze would have been at maximum production levels, hardly a recipe to support the oil price,” Barden said.

“Secondly, Iran, who is only just beginning to re-enter global markets, oil in particular, would have been disadvanteged by any production freeze, as Iran wants to grow output and claw back lost market share. There was never, ever going to be a production freeze agreement in Doha at the weekend, and there is likely never going to be one in the future,” Barden added.

He also noted that Doha’s meeting confirmed the belief that OPEC is finished as price setting mechanism.

“We need a new system where oil is priced via local exchanges which are transparent and accessible to all players. From here a physical, internationally linked oil market will discover prices locally,” Barden said.

Importantly, he added, a new market structure will include consumers and producers together in a co-operative market place, rather than just producers competing against each other for market share (OPEC).

The most significant change is needed for oil markets is to start pricing oil in units of energy, not dollars, Barden believes.

Source: Trend