IEA executive director Fatih Birol spoke with reporters
OREANDA-NEWS. IEA executive director Fatih Birol spoke with reporters on the sidelines of the International Energy Forum (IEF) in Algiers. Below is an edited transcript of the interview.
Regarding the balancing of the market, why is it taking longer than the IEA thought initially? Opec secretary-general Mohammed Barkindo said there is consensus that something has to be done to get the rebalancing brought forward to late-2017/early-2018.
Basically two reasons: demand growth is weaker than we had assumed earlier, especially the Chinese demand growth. Growth was about 700,000 b/d, and this year it will be around 150,000 b/d. Europe is weaker once again, and strong growth in the US has also slowed. So first of all demand is weaker. Second is that almost all Middle East countries are pumping oil at record highs, and as a result the Middle East share in global oil production reached historic levels, around 35pc, which is the highest level in the last 40 years. So these are the two main reasons we think it might take longer than we thought before, and based on these numbers we think the second half of 2017 may be a realistic timeframe for the markets to balance.
Do you think a cut or freeze from [today's informal Opec] meeting could be a temporary solution, or do you see any other temporary solution that be used to address global supply? What can be done? Do you see a deal or something coming?
One should be careful. The market dynamics changed in the recent years. During the opening [IEF] session I showed a slide, a picture, that in the last five years, oil production growth in the IEA countries was higher than in Opec countries. In my view you should leave the rebalancing to the market fundamentals.
In terms of a balanced market price, you hear some people saying $50-60/bl is a balanced price, but what do you think is a fair or realistic price for consumers and producers right now, especially with the chances of a deal or something happening in the next few months?
By law I cannot give any price prediction, but what I can tell you is that there is a significant amount of oil surplus in the markets. The stocks are getting larger and larger, and what worries me the most here is the decline in investments across the oil industry. [In] 2015 and 2016 you will see two years in a row that investments have declined by 25pc each year, and we expect that [in] 2017 we may see another decline. This will be the first time in the history of oil that three years in a row we will see declining oil investments, which will in turn provide unpleasant surprises for the oil markets.
Why do you think that countries are not coming together to do something about it? It could get worse.
I think the markets, in my view, will take care of that and the supply-demand fundamentals will be the factors that will correct the situation. And I do not think this situation will continue forever. Second half of next year we expect a rebalancing.
You said recently that if prices went to $60-65/bl and stayed there for three to six months, US shale output could recover. Have you changed your mind? And rig counts have picked up and there is some talk that even at $50/bl the shale industry has gotten used to this price.
I think many of the shale plays have shown their resistance by cutting costs and increasing efficiency. Some of them are much less costly than the others, but $60-65/bl range would cover almost all the shale plays. It will also be not realistic to expect that from one day to another shale will switch on and come back to full steam. We need some time to bring the rigs, the workers and everything together. It is the reason why I am saying the market dynamics have changed versus previous years, therefore we should take into account all of these new factors.
What are your projections for oil demand growth this year and next?
This year we expect about 0.8mn b/d. We have lowered our demand numbers mainly due to what happened in China. Chinese numbers are much weaker than what we thought before, mainly driven by a few factors ranging from the economy to the measures that the Chinese government took during the G20 meetings.
How about the call on Opec?
As I mentioned, the Middle East countries, the main bulk of Opec, is pumping at record highs. It has brought Opec production to a record level in terms of its share of global oil production, about 35pc, and together with Russia today, the Middle East and Russia produce about half of the global oil.