Thus far the brent crude is down by 3.6 % today and the WTI is priced below USD 40 per barrel. The spot price for the black gold has not been this low since August and it is apparent that the bear market is not yet over. Goldman may be right in predicting that the oil price may move into the 20 - 30 USD per barrel range at some point during the winter months. If such an event plays out my plan is to invest my surplus cash in oil companies in order to average down my entry levels (I started investing heavily in the energy sector a couple of months ago).
The market is currently in limbo waiting for the OPEC oil minister meeting in Vienna on Friday. The media consensus seems to be that the situation will stay in status quo and that the meeting will result in no new strategic direction by OPEC as Saudi Arabia is not willing to cut production and risk to loose marketshare. The ongoing theme has been for OPEC to pump record volumes out of the ground in order to drive rival, higher cost producers such as US shale oil producers out of the market. The strategy has thus far worked as US shale output seems to be slowing. The main downside is that Russia has followed OPEC´s lead and has increased its output significantly as well contributing to the current over-supply.
Iran has asked OPEC to go back to the old OPEC production celling of 30 million barrels per day (OPEC is currently producing 31.5 million barrels per day) and Venezuela wants the "cartel" to cut production by 5 %. Other member countries are also cheering for production cuts. The below graph illustrates that Saudi Arabia and Iraq are the driving forces behind the current over-supply of oil as they have increased their production significantly in 2015. Most of the other member countries have held their output unchanged.
As Saudi Arabia is the largest producer out of the lot and they have driven the current over-supply they seem to be the one power which has the ability to change the current situation. In my opinion Saudi Arabia may feel happy about what they have accomplished in halting the US shale oil boom, however they will not adjust their output downwards before they have the Russians onboard. The current situation of oversupply may come to an end if OPEC and Russia can come to an agreement regarding production levels as these two powerhouses produce close to 50 % of the current world output. As this will not happen this week I expect nothing new to be presented from the OPEC oil minister meeting in Vienna on Friday (although I am hoping for a miracle)...
2014 to 2015 OPEC member countries production change:
Source: Peakoil
Continued strong demand growth:
Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it.
