Bloomberg reports that oversupply worldwide, created by OPEC’s refusal to cut production, has devastated the shale industry’s ability to produce oil at a competitive price, leading to rig closures throughout the sector. “The weakness of global manufacturing activity is… putting pressure on energy demand”, JBC Energy said, adding that it expected a significant drop in oil demand growth in 2016.
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From a global demand of 1.8million barrels per day (mb/pd) in 2015, IEA, in the report released on Friday, said the demand for oil would plummet to an abysmal 1.2 mb/pd by next year.
The declines have been driven by mounting evidence of stockpiling, but the comments by OPEC Secretary-General Abdullah al-Badri on Monday provided a bullish tone to the market.
Oil prices have collapsed by more than half since mid-2014 with prices languishing under US$50 a barrel, hurt by the supply glut and the decision by oil exporter grouping OPEC to maintain output to counter booming USA shale production.
In one sign of the excess, there are flotillas of supertankers holding station off numerous world’s major ports, their only job to store more than 100 million barrels of crude oil and heavy fuels waiting for buyers.
Surplus oil inventories are at the highest level in at least a decade because of increased global production, according to the Organization of Petroleum Exporting Countries. “The physical oil market is falling apart just as we are hitting the winter, when it’s all supposed to be getting better”.
Of that total, 1.8 million barrels per day will be used domestically, while the remaining will sold on the market.
Brent, the global benchmark for oil, settled down 1 percent and less than $2 from a new 6-1/2-year low. More important, he said it won’t matter what the impact will be on the price of oil. Further out it may struggle to meet that goal because the low price of oil has slowed down the investment needed in infrastructure to meet that goal.
USA light tight oil, the driver of non-OPEC growth, is expected to decline by 600,000 bpd next year, versus previous expectations of contraction by 400,000 bpd.
OPEC member Ecuador said at an Arab-South American summit in Riyadh that the only way to balance the market was to cut production and it aimed to reach an agreement on that at the producer group’s December meeting.
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CARACASOil ministers of OPEC nations will hold a “candid, informal” meeting on December 3, a day before the group’s formally scheduled encounter, Venezuela’s energy minister said on Wednesday, adding the idea was suggested by Saudi Arabia.
