Crude oil futures edged away from their lowest in more than two months on Friday, lifted by a dip in OPEC production, although swelling United States stockpiles triggered by ongoing oversupply kept the market outlook bleak.
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Much of the impetus behind OPEC’s dubious projection of a rebound in the price of oil in the first half of 2016 is based upon the assumption there will be a decline in non-OPEC supply of about 130,000 barrels per day.
“The recent decline in oil prices has encouraged additional oil demand”, OPEC said in the report.
Oil prices have more than halved in the past 18 months with supply bolstered by US shale oil output and OPEC’s refusal to cede market share.
“This massive cushion has inflated even as the global oil market adjusts to $50 per barrel”.
Non-OPEC cuts in oil production won’t have any impact on oil prices in 2016. But from a supply perspective, IEA highlights how the current supply glut has spread to distillates, as rising demand for gasoline from the U.S. and China has spurred on higher refining runs, causing ‘ballooned’ distillate inventories.
“But the current forecast is for a mild winter in Europe and the US If it turns out to be true, bulging stock levels will add further pressure and oil market bears may choose not to hibernate”, the IEA said.
But Opec said its output could trend higher again next year, with a 560,000 barrels per day (bpd) surplus, if it continued pumping at October’s rate of 31.38 million bpd. The oil glut was slated to continue well into 2016 and only see moderate recovery by 2020, according to an IEA report released Tuesday.
But he said the growth in demand this year, which the IEA says should reach 95.5 million barrels a day this quarter, was one of the few positives in the report “among the plethora of darkness and negative overtones that’s sending oil down to $40”. OPEC in the report left its 2016 oil demand forecasts unchanged, predicting the world would need 30.82 million bpd of OPEC crude and that global demand would grow by 1.25 million bpd.
“Record-high output in Russian Federation provides a partial offset”. While a few members such as Venezuela have recommended changing strategy to support prices, OPEC Secretary-General Abdalla El-Badri said November 9 that supply and demand are on course to rebalance next year.
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Total oil inventories in developed nations increased by 13.8 million barrels to about three billion in September, a month when they typically decline, according to the agency.
