Oil Fundamental Forecast – September 19, 2016

Crude Oil tumbled 72 cents to 43.19 and Brent Oil gave up 79 cents to 45.80 as traders looked more closely at supply and demand as global production continues to soar. Markets are not expecting much in the way of an agreement at next week producers meeting and even if the major producers agree to a production freeze they are all at the highest levels in years which will not lower global stocks.

As most of the world focuses on how unfettered oil production will weigh on prices, a few say a rebound is on the cards as the market starts to reflect a growing risk of shortages. OPEC’s strategy of keeping its taps open is leaving a smaller cushion if there’s an unexpected need for more oil. The group’s spare capacity has dwindled to the least since 2008, US government data show, while global spending cuts have diminished prospects for new output.

Prices may jump more than 35% from current levels as they start to reflect the risk of a supply squeeze, according to Citigroup. The biggest energy crash in a generation prompted the industry to cut $1trn in spending. That’s resulted in less new production and the slowing of current output as firms scrimp on technology that lengthens the life of fields.

Citigroup sees prices rising to $65 next year, while Guvnor envisions an advance to as much as $70, levels last seen in 2014.

Members of the Organization of Petroleum Exporting Countries (OPEC) had about 1.1 million barrels a day of spare production capacity last month, the US Energy Department estimates, compared with more than 4 million in late 2010. In 2011, after unrest in Libya cut output in that nation by about 1.5 million barrels a day, OPEC members tapped into spare capacity as oil prices shot up above $120 a barrel.

Angola pumped more that summer, while Saudi Arabia increased its own production by 1.35 million barrels a day.

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