Oil Markets Update – 8/24/16

A quick oil markets update.

Crude oil prices are holding around $45 per barrel.

According to the IEA Oil Market Report (OMR) for August, global oil demand growth is expected to slow from 1.4 mb/d in 2016 to 1.2 mb/d in 2017.

OPEC crude oil output is at an eight-year high on increased production from Saudi Arabia and Iraq. The group of oil producing countries has again suggested that it is open to freezing output at current levels; however, the collapse of previous talks due to conflict between Iran and Saudi Arabia is keeping expectations low.

With stockpiles still high and Chinese demand still flagging, it seems as though more supply distributions are the only way markets are going to see balance anytime soon.

Thus far everything from strikes to wildfires to militant activity have forced significant amounts of output offline so it is hard to say what will happen next. Venezuela seems the best bet for the next big production decline. Since the nation is failing to pay debts as its embattled president cracks down on dissidents instead of making economic reforms, many companies that provided critical support functions are withdrawing their operations.

Still, so long as the stronger shale drillers stand ready to drill when prices rebound, it may take a while for the $60 a barrel break companies are waiting for. Reflecting market pessimism, the 10 large publicly listed oil producers have already cut planned investments for this year by 40% compared with their plans two years ago, according to analyst consensus on FactSet. The cuts mean less new output in the years to come and possible trouble for oil markets in the long-run.

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