Recognising that something had to be done to halt the latest crash in oil prices, Saudi Arabia’s energy minister Khalid al-Falih went public with his support not only for an extension of the OPEC cuts for another six months, but he also dangled the possibility of an extension into next year.
At the same time he waived away the signs that the market is still woefully oversupplied, acknowledging the larger-than-expected rebound in US shale, but still noting that the fundamentals are improving.
Up until now the decision was whether or not to extend for six months. Now, with a six-month extension looking assured, there are questions whether even that will be enough.
Many of the top energy analysts tend to agree with al-Falih’s near-term assessment – that the recent selloff might have gone a little too far due to some technical trading particulars rather than the re-emergence of a supply glut. The oil market, however ploddingly, continues to adjust towards some sort of balance.
The industry has structurally reduced costs and can grow production even with oil trading at today’s prices. That could ultimately mean that prices never go back to $100 per barrel.