Unexpected? ‘The Best Cure for Low Oil Prices are Low Oil Prices’

There is clear evidence that oil prices are stabilizing and might even begin to recover. That’s according to the latest report by the International Energy Agency.

It said that lower oil output in the United States and other countries helped to curb the glut in the oil supply on the markets. In particular, OPEC’s output fell by 90,000 barrels per day in February due to production outages in Nigeria, Iraq and the United Arab Emirates.

Jim Krane, expert on Mideast/OPEC and Saudi market strategy, Wallace Wilson Fellow in Energy Studies at Rice University’s Baker Institute for Public Policy, joined Radio

Sputnik to discuss the current state of the global oil market and its prospects.

“The best cure for low oil prices are low oil prices. As people start to take advantage of discarded oil and buying a little more of it some of the inventory disappears so that seems to be a part of what is happening. At the same time the producers are no longer willing to produce oil at such low prices, they start laying people off and then production starts to drop so we see a little bit of market balancing.”

“People don’t really know what’s going to happen. There is a big question mark over production especially over shale production because the supply is so elastic. When prices recover somewhat these people who have been laid off and left the oil patch, all those guys will go back to work and shale price will increase.”

He further spoke about the Goldman report and the new source of supply in the US that doesn’t take the same kind of planning and huge investments and multiple year projects. “It is just about sending a few guys back into the field and they start producing oil again.”

The analyst spoke about the oil prices at the end of this year and what he personally thinks will happen.

“I feel that there will be some modest recovery as far as the oil prices are concerned. The longer they are low the more that stimulates demand and removes supply. If everything else remains roughly constant prices should start edging back up,” Krane said.