By Santhosh V Perumal/Business Reporter

Oil prices will bottom early next year and track up over the remainder of 2016 as market fundamentals restore balance, according to the Ministry of Development and Statistics (MDPS).

“Reductions in energy subsidies in the Middle East, improved energy efficiency in advanced nations and continued substitution towards renewables will all weigh on the oil price outlook,” MDPS said in its recently released Qatar Economic Outlook 2015-17 Update.

Non-Opec (Organisation of the Petroleum Exporting Countries) supplies are set to contract mildly in 2016, led by private producers in the US, it said.

In its Oil Market Report, Opec foresees production outside its group falling by about 130,000 barrels per day, as nearly $200bn of capital expenditure cutbacks put the brakes on supply.

Although the October 2015 Oil Market Report of the International Energy Agency forecasts global oil demand to slow in 2016, it anticipates that the present glut in the market will ebb in 2016, supporting higher prices.

“The medium-term oil price outlook in 2017 and beyond is less certain,” MDPS, however, said.

It said additional Opec supply could come to the market from Iraq and Libya, as well as from Iran once sanctions are lifted.

Highlighting that the market outlook will also be heavily influenced by prospects in China; the update said the International Energy Agency’s World Energy Outlook 2015 foresees that Beijing’s energy demand expansion could be nearing its end.

Despite falling prices, which is now 60% lower year-on-year; Opec’s meeting on December 4, 2015 concluded without an agreement on production ceilings.

Oil output from Opec countries in October 2015 reached 31.8mbpd (million barrels per day), which is more than 1mbpd up on last year’s output. Non-Opec supplies, too, have soared and are likely to average about 58.1mbpd in 2015, an annual gain of close to 1.15mbpd.

Global demand, up by about 1.8mbpd in 2015 over 2014 levels, has been “overshadowed” by the supply increase and has led to “significant” stockpiling, MDPS found.

Highlighting that Organisation for Economic Cooperation and Development (OECD) commercial inventory levels have been trending up since late 2013, but this trend accelerated in March 2015; it said inventories in the OECD countries increased to 2.98bn barrels in September 2015, more than a month’s worth of global oil consumption and a five-year high.

MDPS also said the price difference between Brent and WTI is expected to narrow over the forecast period (2015-17).

Before 2010, WTI traded at a premium to Brent. This premium was subsequently reversed as large quantities of crude from North Dakota and Canada flowed into Cushing, the major trading hub for oil cargoes in the US.

The consensus is that the premium on Brent will fall to $4.76/bbl in 2016 and further to $4.31 in 2017, from an estimated $4.85 this year. Some pundits, including Lloyds Bank and Westpac, predict that the difference could be eliminated, or even reversed.