Brent crude, the global oil benchmark, fell 0.7% to $39.86 a barrel on London’s ICE Futures exchange. Further, the latest bearish inventory storage report from EIA has deepened the global supply glut. Cost of production for the United States is relatively higher, and if oil remains at lower levels, production might just not be sustainable.
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The IEA expects oversupply to continue at least until late next year, suggesting prices will struggle to recover.
In the past OPEC has responded to price falls by curbing production.
Earlier this week, the US Energy Information Administration forecast that US shale oil production, now a major source of oil supply, would fall in January for the ninth month in a row.
Output will continue to decline as it has over the past eight months. However, it is important to note that no matter how efficient U.S. energy companies become, surviving in a $35 crude oil environment is a very hard task.
European shares slipped to their lowest in two months, with Europe’s broad FTSEurofirst 300 index ending 2.14 percent lower at 1,397.49 and posting its biggest weekly drop in three and a half months.
The agency says that defaults are now as high as back in 1999 and the future looks bleak.
“We are in favor of, not a cut, but of countries not increasing their output, so that demand, which is growing year-by-year, is covered by the oversupply that exists in the market”, Novak said, according to a report by the Prime news agency. Analysts wonder whether these measures alone are enough to sustain the new lows of crude oil prices. “Products at the top of the barrel fared best; naphtha cracks hit multi-year highs in all regions buoyed by high petrochemical demand, while gasoline cracks firmed in the Atlantic Basin on export demand”, the IEA concluded. “This could automatically have a negative effect on dollar-denominated oil prices”, Hans van Cleef, senior energy economist at ABN Amro, said.
However, the Organization has improved the forecast for growth on the global oil demand in 2015, keeping its expectations for 2016, the December report of the Organization.
World oil demand is anticipated to increase by 1.53 mb/d in 2015, averaging around 92.88 mb/d.
The picture in the year ahead is not so encouraging, “partly due to flagging GDP growth in China and other economies, but also because there are limits to how many air miles, vehicle miles and ship miles can be added”.
Early indicators for the fourth quarter of 2015 show growth easing to 1.3 mb/d year-on-year from a third quarter peak of 2.2 mb/d, the IEA noted.
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Depressed oil prices didn’t help global stock markets either.
