Oil Prices Unlikely to Climb above $40/bl average in 2016, GI Survey Says

51% of the respondents to a GI Survey of 250 energy industry professionals operating in the UAE expect oil prices to average $40/bl in 2016, while nearly a third of respondents cited $30/bl.

Oil prices are unlikely to rise above an average of $40/bl this year, putting additional pressure on governments and energy companies to cut their capital costs further, according to 51% of respondents to a GI Survey of 250 energy industry professionals operating in the UAE.

Comparatively, 41% of respondents expected oil prices to average $60/bl in 2015 during the same GI Industry Survey in January 2015. Oil prices fell to a 12-year low this month, as OPEC’s policy to maintain market share – a move that has contributed to falling oil prices – has not weakened output from non-OPEC producers, including US shale operators. The oversupply is set to continue in 2016.

“The oil prices are moving lower faster than the oil barrels can come off the market,” said H.E. Dr. Emmanuel Ibe Kachikwu, Nigeria’s Minister of State for Petroleum Resources and OPEC President (2015).

OPEC President Dr. Kachikwu said an emergency OPEC meeting may be called during the first quarter of this year to address the negative economic impact of sliding oil prices, with Brent oil currently hovering around $30/bl. The next scheduled meeting is currently June 2nd. But fellow OPEC member H.E. Suhail Mohamed Al Mazrouei, the UAE’s minister of energy, questioned the value of calling an emergency meeting that would only focus on OPEC’s contribution to the oversupply in the global market.

“I am not convinced that OPEC alone can unilaterally change this strategy just because we have seen a low in the market,” Al Mazrouei said. “We were assuming some level of cooperation when we tried [at previous] meetings, but everyone said ‘it is not my problem’. That left it to the market and I think that was the wise thing to do.”

Lower oil prices have taken a hefty toll on governments whose budgets are heavily supported by energy revenues, including OPEC members. Oil and gas companies are also slashing expenditure and increasing staff redundancies in the Gulf and beyond.

Nearly 45% of respondents to the GI Industry Survey said that the restrained budgets in the Gulf will be the top macroeconomic factor affecting the oil and gas sector in 2016, followed closely by China’s economic weakness (38%). The weakening economies in the majority of BRIC countries (Brazil, Russia, India and China) and the US’ decision to increase interest rates will not have as much of an impact, with only 10% and 8%, respectively.

A strong majority (71%) said that oil producers and companies will revise down their reported recoverable reserves of fossil fuels following an agreement at the Cop 21 climate change meeting in Paris last December to limit global warming to below 2C and strive to keep temperatures at 1.5C above pre-industrial levels.

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