- Brent prices have fallen to a new low of $36.05/bbl intraday, the lowest for 11 years, as OPEC continued its policy of maximising market share after 4th December meeting
- We have revised our 2016 average price forecast downward from $56.60/bbl to $47.92/bbl accordingly
- For the first time, OPEC declined to set a production target in a tacit admission that attempting to impose production targets would fail
- Bearish pressure has also come from the Federal Reserve through raised interest rates and the US congress lifting the ban on US crude exports
- Oil inventories are at record high levels, likely to add continued bearish pressure on prices through 1H2016
- India, now the fastest growing large economy (7.3% GDP), is the second largest contributor (+0.22 million b/d) to 2016 non-OECD oil demand growth after China’s 0.44 million b/d. Removal of diesel subsidy dampen domestic diesel demand growth
- Saudi Arabia and Russia, the two countries most able to electively cut production, have sufficient foreign currency reserves to survive current prices for years
- Moody’s has begun reviewing US onshore credit ratings as lower prices and lack of access to capital and asset markets threaten operators
- OPEC remains likely to grow production next year as Iran emerges from sanctions and the market share strategy continues
- We estimate global 2016 production growth at 0.69 million b/d, less than half of demand growth of 1.54 million b/d, but production will still exceed demand and provide continued price pressure
by Graham Walker // 23 December, 2015
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