Oil prices plunged around four per cent as concerns about the market’s surplus resurfaced. Instead of hard facts, different news, rumours and anecdotes nourished bearish sentiment and put pressure on prices. Russian official statements opposed deeper output cuts which lent support to the doubters of the effectiveness of the supply deal.
Trader comments pointed at recent Nigerian and Libyan export growth resulting in an increasing amount of cargoes looking for buyers. The concerns about the oil market’s persistent surplus ultimately boil down to the sheikh-versus-shale standoff. The supply deal has so far been ineffective in reducing abundant global oil storage, increasing the risk of compliance slippage going for-ward.
Meanwhile, the US shale industry continues to surprise with its cost competitiveness and flexibility. The unexpected drilling rebound fuels production growth which should keep its momentum beyond year end, even if the rig count starts to moderate. The sheikh-versus-shale standoff remains the market’s hot topic, with the latter side maintaining the upper hand. We see prices trading sideways, spending more time in the high 40s than the low 50s. Growing shale output and stagnant western world oil demand undermine the Middle East’s supply deal. With the deal’s effectiveness being questioned.
Source: CPI FinancialPrevious Next