The Organisation of the Petroleum Exporting Countries – which pumps about 40% of the world’s crude oil – decided last Friday against cutting output to bolster prices and protect revenues.
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Investors are betting on the oil price staying lower for even longer after OPEC’s decision to ditch a formal production ceiling, pushing U.S. crude futures for delivery almost 10 years away below $60 a barrel.
The failure to agree production levels means OPEC core members are readying for new battles for share in a market consuming nearly two million barrels per day less than it is producing.
Outlook for 2016 – supply glut to decline – This will reduce the oversupply during the course of next year, which we believe will spark recovering prices.
Francisco Blanch, head of Commodities Research at Merrill Lynch, said Tuesday that a strong US dollar and restrained global growth could create downward near-term pressures on commodity prices.
Meanwhile, the American benchmark West Texas Intermediate recorded the lowest price since February 2009 and dived below $37 per barrel on Tuesday to reach as low as $36.65 a barrel. By contrast, offshore production is rising, according to the U.S. Energy Information Administration, driven by the desire of oil companies to complete these complex and costly wells once they’ve begun.
The EIA projected that the US crude oil production will average 9.3 million barrels per day in 2015 and 8.8 million barrels per day in 2016.
“Couple this with a strengthening dollar as the market anticipates a USA rate hike this month, oil is heading lower with a near term target of $32 for WTI”. Now, the Indian basket is ruling at the lowest level since July 2004 – a development that could impact the Indian currency.
Countries like Ghana who now rely heavily on oil revenue will be the hardest hit if the prices continue to tumble.
Data on Wednesday showed that Chinese net exports of refined products have averaged 111,000 barrels a day in 2015, compared with net imports of 13,000 barrels a day in 2014.
Jim Ritterbusch of Chicago-based oil consultancy Ritterbusch & Associates said he expected “a near-term price consolidation that could see a lift in WTI values back toward the $42 area by the end of next week”.
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This situation is also leading to yet more oil drilling operations shutting down, with the number this week at just 545, around one third of the amount of rigs that were operating just a year ago.
