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Global oil prices increase as supply hits tipping point

Saturday October 22 2016
oil-tanker

An oil tanker off-loading crude oil in Mombasa: Saudi Arabia Energy minister says oil markets were nearing the end of a significant slump as fundamentals were improving and supply and demand were rebalancing. PHOTO | FILE

Oil prices surged by close to three per cent on Wednesday with American crude price hitting 15-month highs buoyed by big declines in US supply and the bullish comments from Saudi Arabia’s oil minister.

On Thursday, Brent Crude was up 1.4 per cent to reach $52.42 a barrel.

The prices have improved, helped by comments from Saudi Arabia’s Energy Minister Khalid al-Falih that oil markets were nearing the end of a significant slump as fundamentals were improving and supply and demand were rebalancing.

Saudi Arabia is the biggest oil exporter and key member of the Organisation of Petroleum Exporting Countries (Opec) and its comments on the oil market carries extra weight.

Also boosting the oil market was evidence of declining production in China, and optimism that Opec would reach a deal to cut output to between 32.5 million and 33 million barrels a day, at its meeting on November 30 after a long period of unrestrained production.

Opec secretary-general Mohammed Barkindo said he is confident about the prospects of a planned production cut during the meeting, with sight set on a sustained oil price of $50-$60 per barrel.

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World Bank forecast

The World Bank has also raised its 2017 forecast for crude oil prices to $55 per barrel from $53 per barrel.

In a statement last week, the bank said energy prices (which include oil, natural gas and coal) are projected to jump almost 25 per cent overall next year, a larger increase than anticipated in July.

According to the bank, oil prices are expected to average $43 per barrel in 2016. “We expect a solid rise in energy prices, led by oil, next year,” said John Baffes, the bank’s senior economist.

“There is considerable uncertainty around the outlook as we await the details and the implementation of the Opec agreement, which, if carried through, will undoubtedly impact oil markets,” added Baffes.

However, a modest recovery is projected for most commodities in 2017 as demand strengthens and supplies tighten.

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