Oman crude oil trading on the Dubai Mercantile Exchange last month continued to climb from historic lows in January, with prices consolidating above US$30 per barrel as Saudi Arabia and its fellow Opec members look at solutions to address the market oversupply.
The steady increase since late January has led to some observers calling a bottom to the market and dispelling predictions of a sub-$20 per barrel, which a number of analysts were calling.
“The oil market has bottomed out. It will not go back down to the lows of January for a long time,” said a leading London-based oil brokerage on Tuesday.
The monthly average price of the DME for February, which is used by Oman and Dubai to set their official selling price, was $30.23 per barrel for April delivery and up $2.83 from the January monthly average of $27.40.
In terms of daily settlements, Oman crude has now rallied by about $10 per barrel since the $23.72 low on January 21, trading just above $33 this week – up almost 40 per cent.
News that Saudi Arabia is working with the Opec members Venezuela and Qatar and the non-Opec producer Russia on a plan to freeze oil output at January highs while seeking stability in crude prices was the key factor in lifting prices to the year-to-date high, encouraging investors to buy back into the market.
Additionally, Opec produced less crude last month – dropping by 280,000 barrels per day from January.
The mood was summed up by the UAE energy minister Suhail Al Mazrouei, who called on all producers to freeze output. “This is the reality. Current prices will force everyone to freeze production,” said Mr Al Mazrouei.
Iran’s plan to increase output to pre-sanction export levels was regarded as a stumbling block in the overall price recovery, but observers are increasingly factoring that Iran will show restraint and go for a gradual output hike, rather than derail the price recovery with a sharp increase. Iran said recently that its oil exports rose over the past month, climbing as high as 1.7 million bpd.
Any agreement to freeze production may lead to a formal Opec gathering before the next scheduled meeting in June, but that would require wider cooperation by non-Opec producers, particularly Russia.
The Russian energy minister Alexander Novak’s remarks that oil firms in the country support a pledge to average production this year at January’s levels helped to underpin prices, while the Russian president Vladimir Putin spoke of “more radical” measures to balance the global oil market.
On the demand side, China’s oil demand will grow 4.3 per cent this year to surpass 11 million bpd, compared to 4.8 per cent growth last year. The state-owned China National Petroleum Corporation expects the country’s oil demand to rise to 566 million tonnes, or 11.3 million bpd, this year, about 460,000 bpd higher than last year. The forecast, in an annual report released by CNPC’s research institute, also put the country’s net crude imports up 7.3 per cent this year to 7.1 million bpd.
Paul Young is the head of energy products at the DME