Anyone who hopes that the possible agreement between the producing countries discussed in recent days can make oil prices soar in a few days, solving all the problems that have exploded before the eyes of the international markets in one fell swoop is deluding themselves. The black gold will hardly be able to recover the lost ground in 2016. A recovery, if anything, will take place only in 2017. For this year we can put our souls in peace.
This is the prediction of Leonardo Maugeri, former director of strategies at Eni who is now an associate professor at Harvard. The same man who in 2012 predicted the fall in prices taking place today. At the time, some called him crazy, others just smiled and ignored what he said. These were the years of the 100 dollars a barrel, a period in which nobody worried about the effect that the imbalance between demand and production which had existed for years would have produced. A few years later the crash came, like clockwork.
Today Maugeri returns to have his say on oil and, in the report "The Global Oil Market: No Safe Haven for Prices" explains well the reasons why to have illusions about a sudden recovery in prices, to date, would not make sense. “Despite the decline in prices, current oil production seems to be defying the laws of gravity and the economy, continuing to grow,” writes the expert.
Once again, the main reason for this contradiction lies in the fact that while many countries and as many companies announce cuts to their future spending budgets, few have decided to proceed in a concrete way with parallel production cuts on projects already underway. The result is that, despite everything, the imbalance between supply and demand continues to grow.
Many are hoping that the storm is over, that in 2016 the demand for black gold will rise enough to reduce some of the excesses created over the years. “But it seems unlikely. Consumption – Maugeri clearly states in the report – will rise again, but realistically it will not reach the level necessary to eliminate the production surplus, which has reached about three million barrels a day”.
A real rebalancing could only take place if producers decide to implement considerable cuts, a hypothesis however that no one seems to be willing to apply in reality. Especially with regard to Iran, back in the game again after years of isolation and openly opposed to considerably reducing its oil supply.
According to Maugeri, the situation could change only if crude oil touches new lows, around 25 dollars a barrel. But even in this case, the negative record would have to be maintained for a certain period of time. This alone would probably push producers to actually do something and reconsider production quotas significantly.
The coming months will be important to clarify what future scenarios could open up for black gold. “Volatility will remain a key feature of the markets,” Maugeri says. Spring, a period in which demand traditionally rises in correspondence with the greater demand from the transport sector, could give the illusion of a recovery, just as the lower production by the United States and other producers such as Venezuela "could convince the markets that the worst is over”.
In reality, warns the Harvard professor, that will be the most delicate moment because it could "put a brake on more decisive actions by producing countries that could convince themselves that the market is finally returning to normal and that there is no need to seek a difficult agreement on production cuts”. Which would be a very serious mistake.
In summary: the only hope that the price of black gold will rise again in 2016 is that there will be a real explosion in demand, unlikely given the Chinese crisis among other things. Otherwise, the first real signs of improvements will materialize only in 2017, provided that someone finally and truly decides to do something.
