Saudi, Iraq and Iran 'culprits' in low oil price scenario

OIL PRICEWill there be a significant upturn in oil prices by the end of year? (Image source: Christopher Penn/Flickr)By the end of June 2016, oil prices could be up to US$57 a barrel and US$73 by 31 December 2016, but Saudi Arabia, Iraq and Iran are still having an impact on the oil price downturn

This was the prediction from Richard Savage, head of energy research for Mirabaud Securities, when he spoke at the 14th Africa Independents Forum. In a broad-reaching presentation, he outlined the multiple factors behind the oil price drop, explaining that "it is a supply issue, not a demand issue".

"Demand has been reasonably stable," said Savage. He explained that initially the US led the charge towards oversupply but more recently, "this mantle was taken up by OPEC [with] Saudi Arabia, Iraq and Iran as the three main culprits". He said the rationale behind these three countries overproducing oil was "let's flood the market to drive out excess investment in the industry".

Savagealso explained that despite a much lower rig count (208)at the time of writing than in October 2014 (1,134), the US industry has still recorded a "sharp uptick in production since 2015".

"The US industry is very good at adapting to change," he told the conference, explaining that even with fewer well drilled, they are being exploited more efficiently.

"[US producers will] focus on the best wells and the more successful wells - if the rig count goes up again, productivity will go down," said Savage.

Other factors cited by Savage as impacting on oil price included refiners using cheap imported crude rather than local oil, a trend since 2004 for financial players to influence oil price rather tha producers, and an increase in inventories which started in 2009.

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