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Turkish expert: Current level of oil prices threatens demand growth and increases downward pressure on oil prices in longer term

Turkish expert: Current level of oil prices threatens demand growth and increases downward pressure on oil prices in longer term

Baku. 9 October. REPORT.AZ/ An era of high volatility and instability in oil prices is essentially a result of uncertainty, Gürkan Kumbaroğlu, President of the Turkish Association for Energy Economics, professor at Boğaziçi University, told Report.

According to him, both on the supply and demand side various factors causing uncertainty trigger the volatility in oil prices.

"The escalating trade war between the U.S. and China dampens expectations on demand growth. OPEC itself trimmed its forecast for 2019 global oil demand growth, emphasizing the downside risk. The supply side is currently under pressure due to sanctions on Iran. This comes at a time when oil investments have been delayed in recent years, essentially since the deep drop in 2014," the expert said.

He stressed that as such, OPEC has little spare capacity to make up for the Iranian exports: "Saudi Arabia has the largest spare capacity within OPEC, declared recently to be 1.3 million barrels per day. Hence, there is some capacity to make up for the shortfall from Iranian exports, yet it gets very tight on spare capacity. Geopolitical risks put further pressure on the supply side, with focus on possible developments in Syria and Iraq."

Gürkan Kumbaroğlu

President of the Turkish Association for Energy Economics, professor at Boğaziçi University Gürkan Kumbaroğlu

The short-term outlook of the oil market depends predominantly on geopolitical considerations, yet has important long-term consequences for the market itself. Once uncertainties related to supply and demand levels, crude inventories and spare capacities are resolved, prices will stabilize. I consider three-digit prices as rather unrealistic and believe that stabilization will occur in the two-digit area.

Touching upon the stabilization of the prices, the expert noted that the current level of oil prices, having increased significantly in short term, threatens demand growth and increases downward pressure on oil prices in the longer term: "The short-term outlook of the oil market depends predominantly on geopolitical considerations, yet has important long-term consequences for the market itself. Once uncertainties related to supply and demand levels, crude inventories and spare capacities are resolved, prices will stabilize. I consider three-digit prices as rather unrealistic and believe that stabilization will occur in the two-digit area."

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