The likelihood that the current slump on oil prices will be reversed is quite low, according to Shell’s chief energy adviser, Wim Thomas. He said this in an interview on the sidelines of the ONS oil conference in Stavanger, Norway with Reuters.
He explained that the huge oversupply which has weighed on prices for the past two years may not likely clear until the second half of 2017.
According to Thomas, the reasons for the occurrence of the slump in the first place, was the global oversupply of oil as the world’s largest producers of oil battled to increase their share in the oil market. This scenario, he said has not changed, especially with the potential return to the market of some 1.5 million barrels per day of supply from Libya and Nigeria as well as the likelihood of increased Iranian and Iraqi production levels.
“All these things when they come back on the market can again postpone the true balancing,” Sweet Crude reports Thomas as saying. This could further delay any potential rise in oil prices as the market would still be flooded.
He said the most optimistic scenario was for re-balancing, to kick in this year and that Shell was prepared for all outcomes.
To achieve this, he said three factors have to work in tandem. First, oil demand from top consumers such as India and China should increase. Second, shale producers in the U.S should not have high resilience to weak prices and lastly, OPEC members agreeing on an output freeze.
These conditions, he said, would mean that huge volumes of stored crude have to be absorbed, while production is lowered, leading to a boost in oil prices.
Parts of this article originally appeared in Sweet Crude Reports.
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