Oil prices crept higher Wednesday but still struggled near multi-year lows as analysts warned the weakness will continue past next year.
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“As companies make further spending cuts in reaction to sub-$50/barrel oil, the impact on supplies – both from non-OPEC and OPEC – will be even more pronounced in the longer term”, the IEA said. The free fall marks a sharp reversal from years of surging oil prices amid the political tension in the Middle East. Falling oil prices are also a far cry from the era when Arab countries imposed an embargo in response to the USA involvement in the 1973 Yom Kippur War.
“Despite the supply adjustment already underway in shale, oil markets look to start 2016 on a weak note, but the underlying adjustment process at work in the market should tighten balances within the next 12 months”, said JP Morgan in a report.
OilPrice reports that ran’s return to the global oil market will only contribute to the oversupply of oil, especially since OPEC, of which Iran is a member, agreed at its third consecutive ministerial meeting on December 4 not to adjust its daily output to bolster prices.
Lower crude oil prices are eating away at the pocketbooks of oil companies.
At the time, crude oil was selling for $106.15 in the US and the worldwide Brent Crude was selling for $124.93. Not only is the number 230,100 barrel a day higher than the earlier month; it is also the highest production rate in around three years.
Iraqi production grew by over 246,500 barrels per day to more than 4.3 billion daily in November, according to source citing the new report, which did not announce a reason for the increase.
Oil traded near the lowest close in more than six years as speculation that OPEC will keep markets oversupplied outweighed a drop in United States crude stockpiles. Prices have lost more than 13 percent since the beginning of the month. The cartel’s monthly oil-market report, published on Thursday, showed that it pumped about 32 million barrels of oil per day in November, surpassing the record it hit just a few months prior.
Global oil prices are determined largely based on supply and demand, and not speculation.
Inventories at Cushing, Oklahoma, the delivery point for the U.S. contract, added 0.4 million barrels to 59.4 million barrels. He projected oil prices would bottom at $31 to $33 per barrel.
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After the “tremendous” growth of 2.23 million barrels per day last year, the group now expects growth this year to have been a “much slower” 1 million – but up from its previous projection of 280,000 barrels.
