An interesting chart from today’s Monthly Oil Market Report (http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MOMR%20January%202016.pdf) illustrates both the bullish (or bottoming) and bearish case for oil:
For 2015, the OPEC reports shows a market in surplus of 1.94 mb/d… According to the report, OPEC production (including Indonesia) was at 32.182 in December… For 2016, add some production from Iran, subtract some production from the US (+/- 500,000 b/d each?) and we start to show a deficit in 3Q2016… The table looks tidy, but the underlying assumptions are messy… How much will actual demand differ from expected demand?… Winter weather, world economic activity, demand from China, etc. will all have a say… How quickly will US production decline?… How aggressive will Iran be in marketing stored barrels and ramping up production?… How much storage space will be left when we reach the surplus/deficit inflection point?… A settlement implied volatility on Friday of 56.5% (32 is average) for April indicates just how uncertain the market is over future price outcomes…
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