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The OPEC Grinch

Published Tuesday, December 8th, 2015

When the outcome of last Friday’s OPEC meeting became known the initial reaction of the market was a $2/bbl sell-off in the space of an hour. Now that market players had a full weekend to digest the result and take into consideration the potential consequences we saw a surprise turn of events. That is that unchanged OPEC policy and the priority of re-gaining a bigger slice of the global oil supply cake is, in fact, bearish and spoils Christmas for oil investors. Both crude oil contracts lost more than $2/bbl yesterday, bringing the total loss of the last two days from high to low of $4.22/bbl on Brent and $4.50/bbl on WTI. Heating Oil closed 628 points lower and RBOB 608 points down.

It will be interesting to see how oil price forecasters will adjust their price estimates in the light of the recent developments from OPEC. We had the first taste from Goldman who said that oil prices will stay depressed for longer than originally thought. It will be equally intriguing to see how forecasting agencies will revise their 2016 supply/demand balance estimates. Will global demand estimates be revised up as front-month WTI has tumbled $12/bbl over the last month? Or non-OPEC supply forecast cut for the same reason? We shall have the first glimpse of that this afternoon when the EIA releases its latest Short-Term Energy Outlook. To help evaluate its forthcoming report we set out below the most important figures from the EIA’s November forecast which sees 2016 global stock build at 420,000 bpd due to a surprisingly low OPEC production estimate of 31.19 mbpd.

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Posted by Tamas Varga

Tamas Varga has been in the oil industry since 1992 and with PVM for 18 years. During his time in the industry he has gathered a range of experience in the oil markets. At PVM Tamas is in charge of data collection and analysis.