Declines in US shale output are contributing more to the rise in oil prices than talks between major crude-exporting nations on a potential production freeze, the head of the International Energy Agency said.
“Even if there was an agreement on the freeze or similar, it would be unexpected that it would have major implications, at least in the first half of 2016,” IEA executive director Fatih Birol said in an interview with Bloomberg Television in Berlin last week. Recent talks “didn’t have a major impact on prices.”
Oil has risen by about a third to trade just below $40 a barrel in New York since February 16, when countries led by Russia and Saudi Arabia, the world’s biggest producers, made a tentative agreement to cap output in an effort to stem the global supply glut. Birol said those talks, due to resume in Qatar April 17, are less significant than the decline in US output, which has slid to its lowest since November 2014, according to government data.
“This has more implication than the gossip around corridors,” Birol said. Oil prices, which reached a 12-year low of $26 a barrel in New York last month, have probably bottomed out unless there is major bad news for the global economy or China, or if US production is more resilient than forecast, Birol said. The IEA estimates US output will decline by 600,000 bpd this year, he said.
In Iran, which is seeking to restore market share after sanctions were lifted in January, the IEA estimates production will increase by 500,000 bpd to 600,000 bpd, short of the million barrels the nation has targeted.
“We have to be very careful with Iran,” whose industry requires major investments to exploit its potential, Birol said. “Lifting the sanctions doesn’t translate into an automatic and major increase.”