Global Oil Glut’s likely to continue through 2017

Whatever the circumstances like good or bad news from the Chinese economy, oil prices mostly result from the interaction of supply and demand. It’s clear that data on the supply side have shown an increased production capacity in the long term and therefore invalidate currently any durable rise in oil prices, except in case of serious geopolitical complications.

This is true in North America, in Russia or in the Middle East where oil companies have all been engaged in extensive industrial investment programs like the Kashagan giant field in Kazakhstan where commercial oil production starts in November 2016. Moreover, US shale gas producers have better resisted the drop in oil prices than expected.

If indeed a number of producers did suffer from the bearish pressure, it forced them to lower their production costs and encouraged consolidation in their sector, quite successfully so far since US production kept on driving world production growth and that no major banqueroute happened since June 2014 when oil was trading at USD 110 per barrel, that is almost two and a half times the current price today.

Institutional forecasts have been clear: the bearish pressure is expected to continue, especially if the US dollar (USD) strengthens thanks to a Fed’s rate hike. According to the EIA, the global crude oil supply should exceed demand during at least the first six months of 2017 while OPEC reduced its oil demand forecast.