Falling oil prices

The UAE’s energy minister on Tuesday rejected a call for an emergency Opec meeting over the latest slump in oil prices, saying that the strategy of letting market forces deal with the world oil glut was working.

Nigeria’s oil minister, Emmanuel Ibe Kachikwu, who is current president of Opec, had said earlier on Tuesday that “a couple of countries” in the group had requested an emergency meeting for February or March, ahead of the regularly scheduled ministers meeting in June, to deal with the oil price crisis.

Asked about those comments, Suhail Al Mazrouei said he didn’t see any point to such a meeting.

“What are we going to agree? I’m not convinced Opec alone can solely, unilaterally change this strategy just because we have seen a low in the market.”

He said previous efforts at cooperation had failed and it was decided to follow a market strategy, which was working the way it was supposed to.

“We were assuming some level of cooperation when we tried [at previous] meetings but everyone said ‘it is not my problem’, and that left it to the market and I think that was the wise thing to do,” said Mr. Al Mazrouei.

Both ministers were speaking at the Gulf Intelligence UAE Energy Forum in Abu Dhabi yesterday and addressing the oil market conditions, which have taken a turn for the worse since the start of the year.

Recent losses added to the sharp decline that began 18 months ago – world benchmark North Sea Brent crude futures were up 25 cents at US$31.63 per barrel in late afternoon trading Arabian Gulf time on Tuesday, but that was down 15 per cent since the start of the year and near the lowest since 2003. The cumulative loss since summer 2014 is more than 70 per cent.

Mr. Al Mazrouei echoed statements from Saudi Arabia’s oil minister, Ali Al Naimi, who has consistently said that the only effective policy to deal with the glut that arose when production from shale plays doubled US output from 2010 to 2015, is to let prices force cuts from the highest-cost producers.

The rise in US oil output has been stemmed and the US government’s forecaster expects output to decline to 8.8 million bpd this year from a peak last spring of 9.6 million bpd.

“My assessment of that strategy is that it is working,” said Mr. Al Mazrouei. “We have seen a major reduction in the yearly production of non-Opec – it is a fundamental change,” he added, noting the billions of dollars of higher-cost projects that have been cancelled globally.

The UAE minister said he couldn’t tell how long it would take to bring the market back into balance, but he said he expects that in the first half of this year there will be continued pressure on the market.

“It might take one to two years depending on whether we are going to see cooperation or not – the glut is still there,” Mr. Al Mazrouei said. “There is hope during this year, 2016, we could see a correction [to the upside] but it is not going to be first or second quarter – the first six months is going to be tough.”

The UAE, in fact, is on track to raise its own capacity this year to about 3 million bpd, he said, up from about 2.8 million bpd last year.

Mr. Kachikwu said he expected Nigeria’s output capacity to rise this year to 2.5 million bpd form 2.1 million bpd last year. He said he anticipated that extra output would be absorbed by the country’s expanding refinery capacity and growing internal demand.​