LONDON (Reuters) – Oil prices are likely to remain under pressure until OPEC gives a clear signal on pricing/production policy, Barclays Capital said on Thursday.
“We suspect that prices will continue to test the downside until key oil producers provide more of an indication as to what will drive their policy, in terms of stating what is a fair and defensible price,” the bank said in research note.
Oil reached a record peak of $147.27 a barrel on July 11, but has fallen more than 25 percent since then.
Barclays, one of the first to predict oil’s extended bull run, said the market’s shift into a more negative mood was partly due to a fall in demand from top energy consumer the United States that coincided with an increase in output from top exporter Saudi Arabia.
“U.S. oil demand is lower year-over-year by 1 mbd…Saudi Arabian crude oil production is higher year-over-year by 1 mbd. Much of the dynamics of the oil market come from those two numbers,” Barclays said.
The Organization of the Petroleum Exporting Countries, which pumps about two in every five barrels of oil, is due to review output levels at a meeting in Vienna on September 9.
Analysts have said Saudi Arabia, the world’s biggest oil exporter, could come under pressure from other OPEC members to trim output.
A Reuters survey this week showed OPEC oil supply rose for the fourth month in a row in August.
Saudi Arabia had raised output earlier in the year to meet demand and dampen prices, but the Reuters survey found that supply from the kingdom has leveled off.
Barclays said it would be wrong to blame the market’s slide on the fall in U.S. demand, since this has been falling year-over-year in every month since August 2007.
“However…U.S. oil demand has certainly moved into the role of touchstone for the maintenance and intensification of negative market sentiment.”
Despite the fall in U.S. demand, Barclays said there was a lack of any sustained move towards a physical surplus in the oil market.
“Demand is significantly higher in the Middle East and India, and Chinese demand growth has stayed robust, while, outside Saudi Arabia, the supply side of the market has been struggling,” the bank said.
The bank sees the market’s supply/demand balance as still supportive for prices despite the current focus on the 2 mbd overhang from the fall in U.S. demand and increase in Saudi supply.
Barclays has kept its 2008 price forecast for U.S. crude oil at $118.5 a barrel, slightly above the average of analysts polled by Reuters.