According to the latest IEA monthly report, the OPEC output hit three-year high and OECD industry inventories surged to record level. Oil prices – at $55.54 OPEC daily basket price on July 9, 2015 – have resumed a downward trend over the last few days. The reasons are both economic and geopolitical.
First of all, just like last summer, the fear of a harsher slowdown than expected of China’s economic growth has come back, stronger than before. The fall in Chinese financial markets has given credit to the sentiment according to which there’s something wrong and that a correction, far more severe than what’s been seen so far, is necessary. One should not forget that Chinese indices are still 100% above their level of one year ago.
Then, global oil demand growth has been slowing again, questioning the perspectives drafted by most of the banking and research sector. Finally, the imminence of a historic agreement – still uncertain however – between Tehran and the P5+1 over Iran’s nuclear program could prompt the lifting of economic sanctions, this way unlocking the export of Iran’s oil production which would add to an already overabundant world oil supply.