Cheap oil prices will cause production to slow this year according to the International Energy Agency. The report says production cuts will come from non-OPEC producing countries and will lead to a rebalancing of the market. The IEA, who advises 29 countries on energy policy, predicts an oil price recovery could also be on the horizon.
Yahoo Finance Editor-in-Chief Aaron Task says the report is on par with comments made by OPEC earlier this week. “They basically said that non-OPEC producers are going to start cutting production and that’s going to put a floor on oil prices.” Task cautions reading too much into the IEA estimate but does think we’re getting closer to stabilization. “I don’t think you will see oil prices go back up dramatically anytime soon because the demand isn’t there and seems to be falling from the lack of economic activity we’re seeing around the world.”
Task says the more important factor is the steadying of prices. Oil prices are down nearly sixty percent since last year and that’s great news for consumers but the dramatic swing can startle the financial markets. “Oil prices going from $100 to $47 in less than six months are a problem because there is all kinds of fallout. It has everybody spooked about what the global economy is doing.”
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As market fears build, the fear becomes contagious. “We’re seeing the same thing in other commodities most notably copper. It is raising fears that the global economy is hitting the skids because oil prices don’t fall this dramatically without something lurking that everybody is getting worried about,” says Task.
Task thinks the big energy producers are being patient and waiting for smaller companies to falter. “The big energy producers and oil services are going to try and wait it out. Wait for the smaller players, the less financially stable players to cry uncle and then they’ll try to scoop up all those assets.”
Once these big companies start making moves, the bottom could be near: “When you start seeing Exxon (XOM) and Chevron (CVX) and Conoco (COP) starting to buy up the smaller guys then maybe you can say alright we are closer to a bottom, but I wouldn’t call a bottom based on what the IEA says.”
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