Opec head sees crude glut easing in 2nd half of year

(MENAFN- Gulf Times) The global crude-oil market will return to balance in the second half of this year as demand growth picks up and high-cost producers trim output amid lower prices, Opec Secretary-General Abdalla El-Badri said.

Consumption in 2015 will increase by 1.2mn bpd after rising more slowly than expected last year by less than 1mn barrels a day, El-Badri said on Sunday at a conference in Manama, Bahrain.

Crude has lost half its value since June, raising risks for suppliers with comparatively high costs of production. The US is idling rigs and delaying wells even as it pumps oil from shale and other deposits at the fastest pace since 1983.

Cheaper crude is a boon to countries such as China and India that rely on energy imports, and Opec's decision on November 27 to maintain production rather than sacrifice market share has added to the glut.

"If we made a cut in the November meeting, then we would have needed to make another cut in January, and then we would need another cut in June as supply will keep increasing from non-Opec," El-Badri said. Non-Opec supply has grown by 6mn bpd since 2008 while production by members of the Organisation of Petroleum Exporting Countries has remained at about 30mn barrels, he said.

Opec pumped 30.6mn bpd in February, an increase of 163,000 a day led by gains from Saudi Arabia, the world's biggest crude-oil exporter. It was the ninth consecutive month that the 12-member group has produced more than its collective target of 30mn barrels, data compiled by Bloomberg show.

Opec shouldn't subsidise the high-cost shale oil producers and that's why the group decided to keep its output target unchanged, El-Badri said. For shale oil production to be sustainable, prices need to be at least $100 a barrel, he said. Shale oil "is not a challenge for us," and the market should be left alone to determine prices that will decide which suppliers can survive, El-Badri said.

He urged Opec nations to continue investing in oil while also diversifying their economies, many of which rely mostly on crude exports.

"The current lower price environment is a test for all producers and investors. Low oil prices means less revenues, and less revenues means tighter budgets," El-Badri said. Opec made more than $1tn in revenue from 2010 to 2014 with oil at $100 a barrel, he said.

Kuwait is in a "critical situation" because crude oil accounts for 94% of the Gulf nation's gross domestic product, Oil Minister Ali al-Omair said at the conference.

Over the next 25 years, the oil industry will need to invest $10tn to meet a forecast 60% increase in energy demand, El-Badri said. "Fossil fuel will remain central to the energy mix," he said.