• Most growth in oil demand to come from Asia, OPEC's Badri says
  • U.S. is now the new swing producer for oil, Yergin says

Global demand for crude will bring more balance to the oil market as soon as next year even with Iran preparing to increase output, according to OPEC Secretary General Abdalla El-Badri and Pulitzer Prize-winning author and energy consultant Daniel Yergin.

Demand will rise by about 17 million barrels a day to almost 110 million barrels a day by 2040, with 70 percent of the growth to come from Asia, the head of the Organization of Petroleum Exporting Countries said at an industry event in Doha. The oil market will rebalance in 2016 or 2017, as demand grows between 1.2 million barrels a day and 1.5 million barrels a day through 2020, Yergin, vice chairman of consultants IHS, said in a speech in Abu Dhabi.

“The expectation is that the market will return to more balance in 2016,” El-Badri said Monday. “We see global oil demand maintaining its recent healthy growth. We see less non-OPEC supply.” 

El-Badri said Tuesday in Abu Dhabi he was “very happy that Iran is back,” referring to the OPEC member’s steps to boost output once sanctions are lifted from its economy. Iran and the rest of OPEC “can work together” to accommodate additional Iranian crude. “We can do anything for Iran, no problem,” El-Badri said, without elaborating.

Global Glut 

Oil tumbled more than 48 percent last year as U.S. stockpiles and production expanded, creating a global oversupply that the International Energy Agency estimates will persist until at least the middle of 2016. OPEC’s strategy to defend market share has exacerbated the glut as the group, which kept its production target unchanged at 30 million barrels a day at the last meeting in June, exceeded the ceiling for the past 17 months. 

Brent crude, a global benchmark, was trading at $47.40 a barrel in London at 3:46 p.m. local time Tuesday. Brent fell 4.3 percent last week.

Current market volatility was caused by oversupply, mostly from high-cost producers, and oil stockpiles are above the five-year average, El-Badri said. Energy industry investment in exploration and production fell 20 percent, or by about $130 billion from 2014 to 2015, he said.

This decline in investment is “a seed” for higher prices, he said Tuesday at a conference in Abu Dhabi, capital of the United Arab Emirates. “We need a price where producers can invest and consumers have supply,” El-Badri said. “We should really stabilize this market.”

‘Tough’ Quarters

Non-OPEC producers must share the burden of any supply cuts as OPEC won’t accept less than 40 percent of global output, he said. Even if the group’s members decided last November to reduce production by 1.5 million barrels a day, that wouldn’t have been enough to balance the market, El-Badri said. OPEC plans to meet on Dec. 4 to assess its output policy.

“The next few quarters are going to continue to be tough as Iranian oil comes back into the market,” Yergin said Monday. “We really see 2016 as the year of transition.”

Oil prices are unsustainable at current levels and will rise gradually as international companies defer projects and production plans, U.A.E. Energy Minister Suhail Al Mazrouei told reporters in Abu Dhabi. The U.A.E. is OPEC’s third-biggest producer.

Swing Producer

“We have a vested interest to keep prices as stable as possible, but we cannot do that by reducing production,” Mazrouei said. “We expect the market will recover by itself because high-cost production will continue to decline.”

The U.S. is now the new swing producer of oil, with much room for efficiency gains, Yergin said. If U.S. law would allow it, the nation could be a major oil exporter by the end of decade, he said. Canada’s oil sands production will add more than 800,000 barrels a day by the decade’s end, and Iran will add 400,000 to 600,000 barrels a day to world markets within a few months of sanctions ending.

“The market will have to deal with a very significant overhang of inventories,” Yergin said. “There’s more volatility in this process.”

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