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OPEC banking on demand

Published Friday, July 31st, 2015

OPEC show absolutely no sign of blinking, judging by the comments of the OPEC Secretary General made yesterday during a visit to Moscow. OPEC he says expect to see increasing oil demand providing price support and are hopeful that this increasing oil demand will enable any increase in supply from Iran to be accommodated.

Unfortunately for OPEC the data, such as it is, does not support this view. Forecasts point to a smaller surplus next year with demand increasing by between 1.2 and 1.5 mbpd and non-OPEC production adding only 200,000 bpd of supply. However the average annual surplus is still approaching 1.5 mbpd without any additional Iranian barrels assuming that “base” OPEC production continues at the current level of around 31.4 mbpd. The world will also be entering 2016 with a record high level of global inventories.

Oil analysts who contribute to the monthly Reuters price survey would appear to agree with OPEC. The latest poll shows the consensus average price for 2016 Brent coming out at $69bbl and for WTI at 63.80. These are big increases on this year’s average and $15bbl above last night’s closing prices. They are also well above the futures forward curve which prices the two grades around $58.30 and 52.80 for 2016.

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Posted by David Hufton