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Saudi oil advisor commented over the weekend that he expects oil prices to ‘firm’

Saudi Arabian oil minister, Ibrahim al-Muhanna, said Sunday that he expects oil prices to stabilize amid healthy demand growth and supply. Muhanna suggested that Saudi Arabia sees no reason to reverse its policy decision from November to maintain output, reports Reuters.

Kuwait’s OPEC governor said last week that the organization is unlikely to change the production policy at OPEC’s June meeting, in the first public comment on the cartel’s possible continuation of its decision to defend market share rather than cut production. It is still too early to say if OPEC will keep its output ceiling unchanged when the group meets, Muhanna said, but he added that he was optimistic about crude oil demand growth and expects future supply to stay “healthy.”

“Once the conspiracy theories lost their traction, serious commentators went back to fundamentals and the price started to stabilize around the $60 mark seen in the last few weeks,” he said at an energy conference in Doha, Qatar. “With this in mind, I have reason to be optimistic. I’m confident that demand will be stronger. Supply will remain healthy and prices will firm.”

Production expectations

In its most recent monthly report, OPEC said that tight oil production in the United States could start curbing off towards the end of this year. The report read, “As drilling subsides due to high costs and a potentially sustained low oil price, a drop in production can be expected to follow, possibly by late 2015.” OPEC’s prediction for average oil production in the U.S. remained unchanged at 13.65 MMBOPD in 2015.

OPEC OMR March US Production

The organization forecast no further rise in demand for its own crude in 2015, saying it expects demand to average 29.19 MMBOPD in the first quarter of 2015, down about 0.9 MMBOPD from the same period last year. OPEC left its predictions for global growth in oil demand this year unchanged from last month’s report, anticipating an average increase of 1.17 MMBOPD. Almost half of 2015 oil demand growth is projected to come from China and the Middle East, according to the report.

OPEC’s report confirmed other estimates suggesting its production declined in February and projected a slightly smaller global supply surplus in 2015, without cuts by OPEC or other producers. Secondary sources cited in the report estimate OPEC produced 30.02 MMBOPD last month. Saudi Arabia, the group’s largest producer, reported a small dip in output, producing 0.4 MMBOPD less in February than the month before.

Market response continues to be bearish

Despite OPEC reporting a potential slowdown in production later this year and Muhanna’s remarks about prices stabilizing, downward pressure on oil prices has continued today, with Brent crude prices continuing a 9% slide from last week. At the time of this articles writing, Brent crude was trading at $54.22.

Prices continued to be pulled down on by the prospect of Iranian oil adding to the global supply glut, reports The Wall Street Journal. U.S. and Iranian negotiations over a tentative political agreement on Tehran’s nuclear program are set to restart today. If an agreement is reached, sanctions could be lifted, allowing Iran to export more of its oil.

Barclays analysts said that the perception that sanctions relief will lead to more oil on the market could pave the way for crude’s next move. “This supports our bearish view, and we see little likelihood of a bullish market reaction to developments in this space,” they wrote in a report.

However, this does not mean that sanctions will be removed all at once, the bank cautioned. “Even in a best-case scenario on sanctions relief, a sea change in Iranian oil exports is unlikely until after June,” Barclays said. Western diplomats also said that serious negotiations over substance would still be needed in the months ahead before any international sanctions on Iran can be lifted.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.