IEA: oil production to fall, oil prices to go up

World oil prices increased today due to the statement by the Executive Director of the International Energy Agency (IEA), Fatih Birol, that the organization this year expects the biggest decline in non-OPEC oil supply in the last 25 years, almost 700,000 barrels per day.

Low oil prices had cut investment by about 40% in the past two years, with sharp declines in the United States, Canada, Latin America and Russia, The New York Times cited Birol as saying.

At the same time the IEA head pointed out that the global demand growth is in a ‘hectic’ pace, led by India, China and other emerging countries.

Birol's statement caused an increase in oil prices - the price of Brent went up over $ 46.05 per barrel on the ICE Exchange in London for the first time since November 2015.

A senior analyst of 'Uralsib Capital', Alexei Kokin, speaking with a correspondent of Vestnik Kavkaza agreed with the IEA. "The production is declining. It is declining in the United States and even in Russia it begins to show signs of decline in comparison to the first quarter," he said.

However, the expert did not agree that the current rise in prices is linked to Fatih Birol's statement. "Firstly, the statement was made last week, but the price increased now. Secondly, it is not the a verbal intervention. 700 thousand is not a very big amount, and the agency's estimates have been included in the price for some time already," Kokin explained.

"I have no rational explanation why the prices have gone up today. I cannot say whether they will fall or not, it [such forecasts] is pretty ungratifying task. I can say one thing: the statement was made a long time ago, so I do not see a direct connection between here," he stressed.

The expert noted that "the markets have been keeping this in mind and I suspect that it has been already included in the price of $45". "Future growth in prices is possible only if there will be information about further decrease," Alexei Kokin concluded.

An associate professor of the Graduate School of Corporate Management of RANEPA, Ivan Kapitonov, also agrees that in the future oil production will go down. "We are expecting a drop in oil production in Russia. The fact that we are raising production serves as an additional background for diplomatic negotiations on the production freeze. We are showing that we still can produce. But, in fact, all the experts agree, and I support this view, that we won't be able to maintain the current level of oil production without large-scale investments in the exploration and oil production. Thus, there will be a decline in the near future. The US production fell to the level of 9 million barrels per day. But against the background of raising prices, we cannot expect this decline in the US production to be long-term. The situation in Canada may be different. It is declining there due to the fact that its oil is very heavy and very cheap. That means that a decline in Canada may be real," he said.

"There can be a reduction, but it is unclear in what countries, and if it happens, then there will be a price correction after the reduction. As a result, the production level will stabilize again. The volume will go up to the original level, if the prices rebound. Countries are fighting to increase their market shares, so they will try maintain production by any means," the expert added.

As for the price situation, " it is not only the news about the production adjustment that affect the market today." "We see the whole range of factors positively affecting the oil price. The first factor is the strike by oil workers in Kuwait, the second factor is the Elliott Wave Principle. Today this wave is on the rise, and the price will go upt to $50. The third factor is the IEA statement," he said.

"Further price movement will depend on whether the countries agree to freeze or not. We will definitely see an upward trend in the next week or two weeks. And after that there will be possibly a positive development as a result of bilateral agreements among the countries that are willing to reach an agreement on the production freeze. I am skeptical about news of a meeting on the oil freeze in Moscow in May, I would not take it into account. The scheduled meeting will take place in June, as planned," - Ivan Kapitonov concluded.