OPEC Forecasts Higher Supply in 2016

OPEC pointed to a larger oil supply surplus on the world market this year than previously thought as Saudi Arabia and other members pump more oil, helping to make up for losses in non-member producers hurt by the collapse in prices.

The monthly report from the Organization of the Petroleum Exporting Countries indicates supply will exceed demand by 720,000 barrels per day (bpd) in 2016, up from 530,000 bpd implied in the previous report.

A persistent surplus could weigh on prices, which have collapsed to a 12-year low of $27.10 a barrel last month from over $100 in mid-2014. OPEC’s 2014 strategy shift to defend market share and not prices helped deepen the decline.

OPEC also cut its forecast for world economic growth in 2016 to 3.2 percent from 3.4 percent and said low oil prices were hurting the economy, in contrast to previous price slides that were supportive of global growth.

“It seems that the overall negative effect from the sharp decline in oil prices since mid-2014 has outweighed benefits in the short-term,” OPEC said. “There seems to be a ‘contagious’ effect taking place across many aspects of the global economy.”

OPEC cited factors including the financial strain on producers dependent on oil income, the inability of central banks to lower interest rates and impacts on sectors from manufacturing to agriculture.

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, he 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