Oil Risks Lower Prices as OPEC Continues High Output

A year on from the start of one of the biggest oil price crashes in history, the driving force behind the slide remains intact: there is still too much crude.

While output continues to grow, the economic outlook has darkened in top energy consumer China, where oil demand has been one of the few bright spots in the market.

Add to the mix record output by the Organization of the Petroleum Exporting Countries (OPEC) and the possibility of a return of Iranian crude exports, and further price turbulence looks almost certain.

Oil prices began a seven-month rout this time last year that took Brent crude futures LCOc1 from $116 per barrel to around $45 by January.

While prices have crawled up since, there are few signs yet that OPEC’s strategy of keeping output high in a bid to drive out competitors, such as U.S. shale oil, is doing enough yet to change market fundamentals..

“The real bearish change is OPEC production that has risen from 29.79 million barrels per day (bpd) last year to over 31 million bpd. I think this is the most significant fundamental change of the last 12 months,” said PVM oil analyst Tamas Varga.

U.S. Energy Information Administration (EIA) data published this month shows that global petroleum oversupply, or production versus consumption, has more than doubled to 2.6 million bpd since the end of the second quarter last year.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza