World oil prices are set to fall further, extending a months-long rout as Saudi Arabia is unlikely to make deep enough production cuts to erase a growing surplus of supply, according to Gary Ross, chief executive of PIRA Energy Group.
Although there are faint signs of improving fundamentals in some physical crude oil markets, any uptick in prices ahead of OPEC's Nov. 27 meeting will be short-lived as the cartel struggles to rebalance a world market that's heading toward a 1 million to 1.5 million barrel per day (bpd) excess next year, he told Reuters in a interview.
"Structurally, the market is oversupplied. Something has to give and we think it will be price," he said on the sidelines of PIRA's Annual Seminar, a closed-door event at which the New York City-based firm releases its oil and gas forecasts to over 1,000 clients, from big hedge fund managers to chief executives.
He declined to say what price would balance the market, but said: "Clearly $100 a barrel is too high. Even current prices are too high. There will have to be more pressure."
Since June, global benchmark Brent crude oil prices have tumbled more than 20 percent or almost $25 a barrel to their lowest since 2012 as a growing glut of crude accumulated in the Atlantic Basin, with demand growth stalling, U.S. shale output unyielding and storage tanks filling up. Brent closed at $91.37 a barrel on Thursday.
Ross's comments set the stage for what will be one of the most important meetings of the Organization of the Petroleum Exporting Countries (OPEC) in years. While the surge in U.S. shale oil production has been building steadily for several years, a succession of outside events - from war in Libya to sanctions on Iran - have always intervened to shore up prices.
"OPEC has been lucky - 3.5 million bpd of shale production has been absorbed through disruptions. They're running out of luck," said Ross, considered among the most influential energy experts in the industry.
While some members are already talking about the need to curb output and shore up prices, kingpin Saudi Arabia has just cut its export prices to defend market share.
The group, which hasn't cut output since just after the 2008 financial crisis, will try to agree on broad curbs but is "highly unlikely" to do so, particularly with some members already pumping well below capacity and others facing budget stress, he says.
That sets up a tough conversation with Saudi Oil Minister Ali al-Naimi, who has grown increasingly impatient with many of the cartel's fractious members.
"The Saudis are not responding to lower prices, they're defending market share," said Ross, who has been consulting with OPEC members for decades.
As the price pain and OPEC-peer pressure intensifies, "I think the Saudis will cut, but it won't be enough," he says.
Nor does he expect to see the growing pressure on U.S. shale oil basins translate quickly into reduced drilling. Many producers have already hedged prices for next year's production, delaying the impact of lower prices on their cash flow.
"The trouble with shale is that it will take time to see a significant decline in production," he said. "It probably won't happen in 2015, really more a 2016 or 2017 event depending on how low prices go."
PIRA, a boutique firm that has typically shunned the media spotlight, was founded in 1976 and has developed a reputation for detailed, ground-up oil and gas market analysis that can be influential enough to move world prices. One of its top executives, Michelle Billig Patron, left the firm last year to become a senior advisor to President Barack Obama.
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