An expected drop in crude prices to USD 30 to USD 40 a barrel this fall might not be enough to balance global oil markets, IHS Energy’s Jamie Webster told CNBC on Monday.
US production needs to fall by as much as 1 million barrels per day (bpd) for the US to balance markets, according to IHS. But such a move would require US crude to trade at or below USD 45 a barrel for two consecutive quarters, and Webster doesn’t see that happening.
“The problem with this is the market, the financial guys, are still quite bullish, and I’m not sure they’re going to allow it to go for two full quarters to give us the kind of cure we need in order to balance this market,” he told CNBC’s “Squawk Box.”
Webster made his comments after a CNBC survey found that a majority of analysts and traders now sees oil falling to USD 30 to USD 40 a barrel in the near term.
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To be sure, 43 percent of market watchers surveyed by CNBC believe the break-even price for many US shale producers is USD 45 to USD 55 per barrel, well below the respondents’ view through the end of the year.
Webster said IHS was not surprised by the summer oil-price slide following a rally earlier in the year. Traders had gotten too excited about signs of US production slowdowns at a time when oversupply was still too high, he said.
“We don’t need it to slow down. We actually needed to drop production in order to bring us to some sort of balance,” he said.
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The US Energy Information Administration reported the country’s oil production stood at 9.51 million bpd in May, down from 9.69 million bpd the previous month, but still near all-time highs.
Likewise, the announcement on Friday that the Commerce Department will allow swaps of US crude for Mexican oil may help to ease the price spread between West Texas Intermediate crude and the international benchmark Brent, but it will not cure the problem, Webster said.
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The Obama administration will allow limited sales of US crude to Mexico for the first time, a senior administration official told Reuters, marking another milestone in loosening a contentious ban on exporting domestic oil.