The downward oil price pressure continues
The downward oil price pressure continues, due to a relatively weak oil demand since mid-2014 and a relentless growth in unconventional oil supply. US oil production has increased by 15% annually for the past 3 years. Production is back at the level of 1986. OECD oil stocks are building to above average levels.
There is no clear consensus on a formal supply cut ahead of the OPEC meeting next week. One of the uncertainties is the cost of US shale oil production, and estimates vary widely. However, cuts in investments in US light tight oil will not necessarily mean lower production, as cost reductions and efficiency gains have been constant.
Still, supply risks remain extraordinarily elevated, exacerbated by falling prices which may trigger unrest.
IEA in its monthly oil market report stated that “It is increasingly clear that we have begun a new chapter in the history of the oil markets”.