Respecting the rules still matters

Respecting the rules still matters

Elisa Maria Giannetto
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According to IEA director, oil will be volatile in 2017. In response, the USA is expanding production, while Asia posts record losses

''The name of the game is volatility'', stated IEA director Fatih Birol when asked about the performance of oil prices in 2017 as they try to recover from recent disappointing results. The field on which the game is to be played is international, the rules are clear and accepted by all, but the question remains as to how many states will be tempted to cheat. The current market is one that can be easily and suddenly shaped by the choices and attitudes of the moment. Today, for example, the price of oil is the result of Saudi Arabia’s willingness to strictly comply with the output cuts it agreed to in the OPEC agreement, weighed against the United States’ increased production and investor skepticism as to whether the agreed upon oil supply reductions will be implemented. Brent fell 10 cents to $55.74 a barrel, while WTI rose 15 cents to $52.55 a barrel. "The market is focused on the build in U.S. production which is nearly up to 9 million bpd… close to 2014 production levels," said Michael McCarthy, chief market strategist at Sydney's CMC Markets. "With U.S. crude clearly above $50 a barrel, we are getting a supply-side response which is pushing production higher," he said, adding that this "potential oversupply shows this is not the right time to be buying oil." On the other side of the world, the Asia-Pacific is seeing record low oil production, with China alone accounting for half of losses. Angus Rodger, an Asia expert and consultant at Wood Mackenzie, estimates that the region’s output will lose 1 million bpd by 2020. In 2016, it reached 7.5 million bpd. But for China, Indonesia, Malaysia and Thailand, which are some of Asia’s biggest producers, the 2014 oil price decline was a severe blow. As Rodger explains, "The scarcity of new oil discoveries over the last two decades combined with lower prices resulted in an annual average base decline rate of around 7% within existing oil fields." This spiral will keep Asia bogged down at current levels.