Oil Prices May Not Have Farther to Fall – IEA Chief

The sharp drop in oil prices is welcome but may not last, the head of the International Energy Agency said Monday.

“I don’t know whether it will continue or not,” Claude Mandil, executive director of the IEA, said after a meeting of member states’ energy ministers. ” I’m not sure we can draw too many conclusions on a move which has lasted just a few days.”
Strong demand combined with limited capacity to boost supply has pushed oil prices up a third in the past year, to near $50 a barrel in New York. Futures settled below that mark for the first time in 48 trading sessions Friday, leading some market watchers to conclude easing fundamentals had finally caught up with the market.

The Organization of Petroleum Exporting Countries boosted output this spring rather than make its more typical seasonal cuts, and commercial oil inventories have swelled as a result.

Mandil nodded to those factors in comments to reporters, but indicated the improved market balance may not persist.

“It’s probably a series of reasons which are making the market understand, at least in the short term, it’s better supplied than some were expecting,” he said.

In addition to supply constraints, a lack of refining capacity remains an important market bottleneck, he said.

Cajoled by Saudi Arabia, OPEC raised its output ceiling by 500,000 barrels a day in March, to 27.5 million barrels a day, and began considering a second increase of that amount.

The group has since put that second increase on hold, with ministers pointing to mounting evidence the market is well supplied. Mandil agreed with that assessment.

“The need for additional oil is questionable,” he said. “We’ll see in the coming weeks ahead of the next meeting whether the market needs more oil. It’s questionable when you see stocks.”

Nevertheless, OPEC needs to convince the market it will make supplies available when they are needed.

Mandil wouldn’t comment on what IEA energy ministers discussed in their meeting. The agency was formed after the Arab oil embargo to represent the interests of energy consumers.

“I welcome this move,” Mandil said of the drop in oil prices, reiterating his view that high prices hurt growth. “We felt prices were too high at $58 a barrel. It’s still too high at $49. We still want it to go down more, but aren’t sure it will.”

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