Even though oil prices might stay low for long, yet demand will very likely increase to support a return to higher prices; hence, "market will rebalance itself and prices will rise," Minister of State for Cabinet Affairs and Acting Minister of Electricity and Water Sheikh Mohammad Abdullah Al-Mubarak Al-Sabah reassured on Monday.
Oil prices will surge again yet "the timing is not certain," the minister said in his speech at the sixth Asian Energy Ministerial Round-Table, currently hed in Qatar. "The world is now re-adjusting to an environment where lower oil prices prevail, and there is great competition from other industries." He pointed out that over the past year or so, oil prices have dropped by nearly 60 percent and have now hit their lowest levels since early 2009, because of an over supplied market coinciding with signs of economic slowdown around the world, most notably in some major Asian economies.
This current lower oil price environment, the minsiter explained, has been caused mostly by the significant supply growth from unconventional, expensive oil because of technological advancement. "Production of expensive unconventional oil made economical sense only because of a period ever of sustained high oil prices from 2010 until mid-2014. Oil prices are also greatly influenced by expectations of demand growth especially in emerging markets." He added that Volatility in equity and foreign exchange markets in Asia have increased uncertainty about the economic growth prospects of many developing nations in Asia, affecting the price of crude oil.
Equity markets around the world, particularly those in other Asian countries, also declined, reflecting market sentiment that China's economic growth may slow down and affect producers of energy and non-energy commodities who are reliant on demand growth in China.
Oil price collapses in 1981-1986 and 2008-2009 are the only analogues for the present oil price situation. So far, the current price collapse seems more similar to 1981-1986 than to 2008-2009, he pointed out. "Eventually the market will determine acceptable and comfortable prices for both producers and consumers," he said, adding that the market already has shown a shift as crude oil production growth from non-OPEC is slowing down.
US tight oil production has started to gradually fall from July 2015, after rig counts fell significantly due to sustained lower oil prices. On the other hand, demand has been remarkably strong compared to 2014 levels, and that would certainly help market to rebalance. "Asian and Middle East countries represent a large portion of the worldØ¢’s population, the bulk of the worldØ¢’s oil and gas reserves and the greater part of the surging global energy demand expected in the decades ahead." Over two-thirds of growth in developing countries will come from developing Asia, with China seeing the largest expansion, followed by India.
"This emphasizes the importance of cooperation and dialogue in order to achieve stability of prices and energy markets and provide sufficient oil supplies, he noted. "The interdependence between Asia and Middle East is obvious and must transform into a strategic partnership between the two regions for their long term mutual benefits." This interdepednece should be supported by transparency and continued open dialogue, an exchange of experiences in the field of energy efficiency, development of alternative and renewable sources of energy as well as development of qualified human resources.
Furthermore, it is essential to stimulate trade without hurdles in order to ensure the stable flow of oil and gas from producing regions of the world to consuming regions like Asia. Energy efficiency is largely recognized as the most measurable and cost effective manner to meet growing energy demands whilst contributing to climate change mitigation and economic growth.
Despite the uncertainties and challenges facing the energy sector, we all agree that our main objective must focus on providing a stable and sustainable energy future for the next generations.