The Trend

Why We Are Bearish on Oil through 2017

After a brief rally on hopes that OPEC would curb supply at its September 2016 meeting, oil prices have again come under considerable pressure.

The International Energy Agency (IEA) noted that its sees the oil glut lasting until late 2017, as output growth slows. In fact, according to the IEA, growth has now slowed considerably from 2.3 million barrels a day in the third quarter of 2015 to 1.4 million barrels a day for the second quarter of 2016.

Then the group warned that supply would continue to outpace demand well into 2017.  In fact, they downgraded global oil demand predictions by about 100,000 barrels a day for this year to growth of 1.3 million barrels a day. 

It also cut its forecast for 2017 by 200,000 barrels to growth of 1.2 million a day.

But wait, there’s more…

Then, the U.S. Energy Information Administration (EIA) found that oil demand fell more than 4% to 2.1% year over year. 

Unfortunately, that’s not the worst of it.

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Recent developments in the OPEC camp have fueled speculation that global oil producers may actually agree on a freeze at its September 26-28 meeting. 

But that’s not likely to happen.

The April 2016 meeting ended in disaster, too.  And since then, OPEC has not cut production.  Instead, they’ve increased it. 

At the moment, OPEC countries are pumping about 33.2 million barrels of oil a day – around its highest point ever.  That alone has contributed significantly to excess supply.

But that may get worse as well.

Libya lifted curbs on crude sales, potentially releasing another 300,000 barrels a day of supply.  In Nigeria, Exxon Mobil is reportedly about to resume shipments, which could return 340,000 barrels a day.  Royal Dutch Shell is also scheduled to restart about 200,000 barrels a day from Nigeria, too.

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Even Saudi Arabia and Iran have increased production in recent months.  What’s most troubling is that countries, like Iran believes it’s too early to talk about freezing production, too. 

In fact, they’ve noted, “As soon as we come back to pre-sanction levels, we will be ready to discuss quotas and level of production.  Four million barrels a day production level is not very far from our hands. I hope by end-2016 or early next year, we would be able to reach that level,” as quoted by

Saudi Arabia’s energy minister, Khalid al-Falih has ruled out a need for a freeze at this time, too.

Bottom line – this may not the time to go long oil.  In fact, if the OPEC meeting fails later this month, oil prices could easily fall again.  A return to a low of $26.05 isn’t out of the question.

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