US Crude inventory Data; Production increasing
US inventory data increased the most yesterday what analysts were expecting and confirming that the glut of oil is still becoming worse than any better. The US has produced more oil during the month of December as compared to their November number, which was the highest number for the country. The shale production has becoming extremely efficient but the question is for how
long it will last and if they can really compete with OPEC.
Having said that, the US drillers are being pulled out of the field and number is at its peaks since 1991 but in terms of production we are not seeing any meaningful drop at all. Only last week, the number of rigs pulled were 61 and it was the steepest number once again since 1991 but production has seen no dents.
OPEC
The OPEC organisation is still maintaining their production and there is no sign of any cuts in sight as they seem to be comfortable enough with the oil price. The organisation is producing nearly 30 mb/d.
Qatar and Kuwait estimates
Kuwait has recently estimated that there is nearly a 1.8 million b/d of extra oil on the market whereas, Qatar is saying that their estimate is nearly for 2 million b/d. Although, the difference is not much between the estimates, the important element is that as long as this much extra supply will remain on the market, traders may struggle for any meaning full upside move for crude.
Russia producing post Soviet
Russian economy is heavily depend on energy sector and the rout in oil prices has made matter a lot more difficult for the country. However, despite these terribly lower prices, country is still producing post Soviet levels which is nearly 10.58 million b/d, up nearly 0.7%. There is still no sign of any cut in oil prices however, any new development or infrastructure is on hold strictly.
Iraq oil production increasing
Iraq is determined to increase its production and is still consistently investing further in its well to increase its production. According to a recent report, Iraq will double its export from northern oil fields and that is not going to help the oil price and will add more towards the supply.
Iraq also gave a new contract to a undisclosed company which will help to double its oil production from its southern oil refinery The country has produced the highest level of oil since 1980
Demand Side
World Bank
World bank has cut its global forecast yesterday which made many headlines yesterday and was the major denominator for commodities. The bank has slashed its forecast for 2015 for the EU from 1.8% to 1.1%, which is a massive cut. Also, they have reduced their forecast for China from 7.2% to 7.1%. All these forecasts can only be translated in one single term which is bad news for oil.
Chinese Importing more oil
Drop in oil prices has benefited one sector when it comes to energy sector which is tankers storage facilities. Some of the biggest companies are charging highest premium for their services and these premiums for their services were not seen till 2008 when we had a crash in oil price.
IMF
The IMF will deliver their global growth forecast next week for global growth and it is very difficult to think of a scenario if they do not have downward revision of their forecast. So, perhaps, it is safe to say, that traders should prepare for some more bad news from demand perspective.
Qatar delayed its new project
The only silver lining for reduction in investment from the Middle East came from Qatar who said they have scrapped their new project which worth nearly 6.5 billion dollars. The drop in oil price is the major behind this and this will stop the gulf country for the time being not to invest in this project- which is a sign not after all rout in oil price is also impacting the middle eastern companies to some extent no matter what they say.
Bringing it together from historical experience
History does repeat itself but with few minor difference therefore, it is important that we go back in time and see when was the last time we had a such a rout in oil price. In 1985, we had a drop in oil prices of nearly 69% from their peak of 31 dollar to approximately 9 dollar. This was mainly due to the increase in supply which took place because an increase in the oil price which made higher energy cost operations more effective and this flooded the market with extra supply. It nearly took 5 years for the price to revert to its normal level.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam