Oil rebound seen by Gulf producers as slump spurs demand

Oil rebound seen by Gulf producers as slump spurs demand

FIONA MACDONALD and MAHMOUD HABBOUSH

KUWAIT CITY and ABU DHABI (Bloomberg) -- Oil oversupply that sent prices to a five-year low will probably persist until at least the second half when demand is set to recover, according to Kuwait’s oil minister and the OPEC governor of the United Arab Emirates.

Faster global economic growth will be needed to help absorb the oil surplus estimated at 1.8 MMbpd, Kuwait Oil Minister Ali Al-Omair told reporters in parliament. A demand-led recovery is seen in the second half, the U.A.E.’s Governor to OPEC Ali Al Yabhouni told reporters in Abu Dhabi.

Oil fell about 40% since the Organization of Petroleum Exporting Countries maintained its production target at a Nov. 27 meeting, seeking to defend market share rather than prices. The U.A.E. and Kuwait are OPEC members. Slowing economic growth contributed to lower prices, Al-Omair said.

“We are expecting that this situation will continue until the surplus oil is absorbed and the world economy improves,” Al-Omair said. “Forecasts indicate that this will not happen before the second half.”

Brent crude rose 0.3% to $46.74/bbl by 2:35 p.m. in Dubai, the first gain in five days. The price was $77.75 before the OPEC meeting.

OPEC produced 30.2 MMbopd in December, down from 30.36 MMbopd in November, data compiled by Bloomberg show. China’s gross domestic product climbed 7.4% last year, the slowest expansion since 1990, according to economist estimates compiled by Bloomberg.

Shale Oversupply

Demand for oil is seen rising in China and elsewhere in Asia, U.A.E. Energy Minister Suhail Al Mazrouei said in Abu Dhabi. It is shale oversupply that needs to be corrected, and OPEC will stand by its decision not to cut its crude output, he said.

Crude tumbled into a bear market last year as oil extraction soared at shale formations in Texas and North Dakota in the U.S. Drilling activity has now slowed to in “core U.S. shale regions,” Norbert Ruecker, head of commodity research at Julius Baer Group Ltd., said in an emailed note.

“We are watching the movement of oil price and indeed it has reached a level that even experts did not expect,” Kuwait’s Al-Omair said. OPEC isn’t planning any meetings before its scheduled gathering in June, he said. “This is OK because even if we now cut some of our production it will not be more than the surplus which is existing in the market.”