In the struggle to rebalance the oil market, observers have twice declared victory prematurely.
Recent comments by the Qatari and Saudi oil ministers, reviving hopes of an agreement on limiting Opec’s output, have triggered a further recent bounce. But the market is still far from “balance”, and even this mythical state would not mean a return to comfortably high prices.
In the early stages of the current slump, back in the middle of last year, Brent crude rebounded above US$63 per barrel before a further crash towards the end of the year. Supply disruptions in Canada, Nigeria and Libya drove a further up tick until May this year, which was hailed – too early – as the eagerly awaited “rebalancing”.
But prices dropped again, with Saudi production last month reaching new records, before a 6 per cent gain last week on renewed discussion of Opec action.
A statement by the Saudi oil minister Khalid Al Falih, released on Thursday, then withdrawn and re-released early on Saturday, repeats the declaration that the market is on the way to balance.
Mr Al Falih’s comments support his Qatari colleague, Mohammed Al Sada, in pointing to the informal meeting of Opec and non-Opec ministers at the International Energy Forum gathering in Algeria in September. This will recall the failed meeting in April in Doha, when at the last minute Saudi Arabia withdrew its support for a deal on freezing production levels that did not include Iran.
The objective conditions for a freeze are better now, mostly since Iranian production is approaching its pre-sanctions levels.
But the intra-Opec politics may still not be right. The Iranian petroleum minister Bijan Zanganeh has said the organisation should return to quotas per country, a policy abandoned in 2011.
So much has changed since then, making new quotas a thorny problem. Nigerian and Libyan production has been seriously disrupted by violent unrest, while repeated attempts to reach a deal between Libya’s eastern and western factions hint at the prospect of revival. Neither country could commit to a freeze at levels well below its aspirations.
Iraq has reached an agreement with Shell, BP and Lukoil on restarting investment, which could result in growth resuming after a tepid 2016.
The number of US rigs drilling for oil has increased for the past seven weeks, with mid-size shale producers such as Pioneer and EOG speaking bullishly of their ability to produce profitably even at current prices. The summer is usually a strong period for demand, with the US driving season and high use for Gulf air conditioning. The autumn demand will be weaker, and India appears to be slowing.
What does balance in the oil markets mean? It indicates that demand would once again equal or exceed supply, and the remorseless accumulation of stocks since mid-2014 would stop, then reverse.
If Opec production stays at current record levels, then the market might be in deficit by about 600,000 per day next year. Allowing for a resumption of production growth in Iraq, some further gain in Iran, and possible – if shaky – recoveries in Libya and Nigeria, partly offset by a continuing decline in desperate Venezuela, the shortfall could be even lower.
Global inventories are still rising, and are likely to exceed the normal by more than 1 billion barrels by the end of this year. Even allowing for some oil permanently locked in Chinese strategic reserves, it could take two years or more to clear the huge stock overhang. Prices would rise in this period, but that gives encouragement to oil companies to resume investing in new production.
In the absence of real prospects for market management, trying to jawbone prices upwards is counterproductive. Empowering speculation without changing fundamentals just encourages competing producers to hold out. It is not worth spending Opec’s long-term credibility to buy a little short-term relief from low prices.
Robin Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis
COMPANY PROFILE
Initial investment: Undisclosed
Investment stage: Series A
Investors: Core42
Current number of staff: 47
The%20new%20Turing%20Test
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Movie: Saheb, Biwi aur Gangster 3
Producer: JAR Films
Director: Tigmanshu Dhulia
Cast: Sanjay Dutt, Jimmy Sheirgill, Mahie Gill, Chitrangda Singh, Kabir Bedi
Rating: 3 star
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Key developments in maritime dispute
2000: Israel withdraws from Lebanon after nearly 30 years without an officially demarcated border. The UN establishes the Blue Line to act as the frontier.
2007: Lebanon and Cyprus define their respective exclusive economic zones to facilitate oil and gas exploration. Israel uses this to define its EEZ with Cyprus
2011: Lebanon disputes Israeli-proposed line and submits documents to UN showing different EEZ. Cyprus offers to mediate without much progress.
2018: Lebanon signs first offshore oil and gas licencing deal with consortium of France’s Total, Italy’s Eni and Russia’s Novatek.
2018-2019: US seeks to mediate between Israel and Lebanon to prevent clashes over oil and gas resources.
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
Company%20Profile
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US PGA Championship in numbers
1 Joost Luiten produced a memorable hole in one at the par-three fourth in the first round.
2 To date, the only two players to win the PGA Championship after winning the week before are Rory McIlroy (2014 WGC-Bridgestone Invitational) and Tiger Woods (2007, WGC-Bridgestone Invitational). Hideki Matsuyama or Chris Stroud could have made it three.
3 Number of seasons without a major for McIlroy, who finished in a tie for 22nd.
4 Louis Oosthuizen has now finished second in all four of the game's major championships.
5 In the fifth hole of the final round, McIlroy holed his longest putt of the week - from 16ft 8in - for birdie.
6 For the sixth successive year, play was disrupted by bad weather with a delay of one hour and 43 minutes on Friday.
7 Seven under par (64) was the best round of the week, shot by Matsuyama and Francesco Molinari on Day 2.
8 Number of shots taken by Jason Day on the 18th hole in round three after a risky recovery shot backfired.
9 Jon Rahm's age in months the last time Phil Mickelson missed the cut in the US PGA, in 1995.
10 Jimmy Walker's opening round as defending champion was a 10-over-par 81.
11 The par-four 11th coincidentally ranked as the 11th hardest hole overall with a scoring average of 4.192.
12 Paul Casey was a combined 12 under par for his first round in this year's majors.
13 The average world ranking of the last 13 PGA winners before this week was 25. Kevin Kisner began the week ranked 25th.
14 The world ranking of Justin Thomas before his victory.
15 Of the top 15 players after 54 holes, only Oosthuizen had previously won a major.
16 The par-four 16th marks the start of Quail Hollow's so-called "Green Mile" of finishing holes, some of the toughest in golf.
17 The first round scoring average of the last 17 major champions was 67.2. Kisner and Thorbjorn Olesen shot 67 on day one at Quail Hollow.
18 For the first time in 18 majors, the eventual winner was over par after round one (Thomas shot 73).
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Match info
Manchester United 0-0 Crystal Palace
Man of the match: Cheikhou Kouyate (Crystal Palace)
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Vikram%20Vedha
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COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
'My Son'
Director: Christian Carion
Starring: James McAvoy, Claire Foy, Tom Cullen, Gary Lewis
Rating: 2/5
Results
United States beat UAE by three wickets
United States beat Scotland by 35 runs
UAE v Scotland – no result
United States beat UAE by 98 runs
Scotland beat United States by four wickets
Fixtures
Sunday, 10am, ICC Academy, Dubai - UAE v Scotland
Admission is free
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How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
The%20specs
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COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners