Crude glut could keep pressure on prices

In its July report, the first to provide insight into 2016, the IEA said annual crude oil gains in the United States next year should decline to 0.3 million b/d from 1.7 million b/d in 2014 and 0.9 million b/d this year.

With uncertainty regaining its stranglehold on the oil market here’s a look at where oil prices might go next. Oil prices rose on Friday, lifted by a rebound in Chinese stock prices and hopes of a breakthrough in the Greek debt crisis, but worries about oversupply and slowing demand limited gains. This new fall happened because of broad market issues, which comes on top of the ongoing glut, the world is awash in Crude Oil. It forecast zero growth in non-Opec oil supply in 2016 after an increase of 1 million bpd in 2015.

Oil-producing nations around the world are reeling after Opec initiated a strategy in November to defend its share of global markets by pressuring rivals to curb output.

While Greece is more likely a side note in the oil equation, its economy was on the brink of financial collapse after its people voted no to an earlier bailout package last Sunday.

“The rebalancing that began when oil markets set off on an initial 60pc price drop a year ago has yet to run its course”.

Corresponding with the oil price tumble, data from the Commodity Futures Trading Commission (CFTC) showed money managers’ net long position in US crude futures and options fell by almost 20 percent in the week to Tuesday, the biggest weekly decline since December 2012.

This was the highest output level since April 2012 and 1.7 million barrels a day higher than a production target it agreed to maintain last month. The Shanghai Composite SHCOMP, +4.54% remains almost 25% off its June high, while the Shenzhen market 399106, +4.09% is more than 35% off its peak.

Finalizing the deal would also bring down oil prices even further, ensuring that they will effectively never have a chance to surpass $65 a barrel in the near future.

By 1230 GMT (8.30pm Malaysian time) on Friday, benchmark Brent crude oil was trading around $59 a barrel. That could weaken oil prices through a stronger dollar, falling European Union demand, and a higher perception of risk. “The structural imbalance created by sustained prices over $100 a barrel was years in the making”.

“As such, despite oil prices still constantly remain under pressure, Petronas has been actively awarding umbrella contracts to local service providers and is expected to continue to do so”, says Tan.

Continued growth in global petroleum and other liquids inventories are also holding the crude markets from rising.