In its December oil market report, released on Friday, the Paris-based International Energy Agency (IEA) projected global demand growth in 2016 to slow considerably, widening the gulf in the supply-demand imbalance worldwide.
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Brent crude has lost nearly two-thirds of its value since July 2014 and was trading at $39.170 per barrel in London on 10:28am GMT on Friday. Chevron (CVX – Get Report), Exxon Mobil (XOM – Get Report), Kinder Morgan (KMI – Get Report) and ConocoPhillips (COP – Get Report) were sharply lower, while the Energy Select Sector SPDR ETF (XLE) fell 3.2%.
This is not likely to have much of an impact in the short-to-medium term as inventories are expected to swell by 300 million barrels into 2016 as sanction-free Iranian oil floods onto the market.
The January West Texas Intermediate benchmark shed 40 cents, or 1.1%, to settle at $36.76 per barrel. Saudi Arabia, the group’s most powerful member, has steered its strategy to pressure rivals in the US with lower prices.
The new December monthly report suggested however that its ploy may be taking longer than expected to bite, with the cartel obliged to increase its forecast for 2015 non-OPEC production. Shares in the USA rebounded from one-month lows, though gains were limited amid a lack of positive catalysts and as oil resumed falling. Non-OPEC supply will shrink by 380,000 barrels a day next year to average 57.14 million a day, with the United States accounting for about half of that contraction, it predicted. Iran’s plans to scale up production are also fueling pessimism in the global market.
Thirty-four years after Muhammad Ali fought his last fight, the crude complex is on the canvas once more. The latest figure does not yet include Indonesia, which rejoined OPEC last week boosting its ranks to 13 countries. Prices along the oil futures curve are now below $60 a barrel all the way through 2024, a sign that a recovery is still far off. “Now we’re seeing just how aggressively everyone is fighting for market share”.
Producers are counting on global consumers to ratchet up demand for crude as they take advantage of low retail prices for gasoline and diesel. The measure fell 1.1% over the past 12 months, primarily a result of slumping energy costs, while core prices increased 0.3%. Next year, the IEA anticipates that global demand will grow by 1.2 million barrels per day, down from its 2015 expectations for growth of 1.8 million bpd.
According to the weekly rig count data released by Baker Hughes Incorporated (BHI), US rig count levels have reached their lowest since April 30, 2010.
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“The next quarter is going to be particularly tough as we go from a high-demand to a low-demand quarter”, said Richard Gorry of JBC Energy Asia.
