With the latest OPEC meeting ending in disagreement (surprise) over production cuts with no real reference to an output ceiling, crude oil settled at $37.65 on the day.
That’s even lower than where it settled in August, as a global standoff with oil producers sends oil to lows not seen since February 2009.
But the worst is far from over…
Total CEO Patrick Pouyanne doesn’t expect a recovery in 2016. In fact, he believes supply will grow faster than demand for another year.
Even Goldman Sachs – which once called for $20 oil – see very little chance of a recovery, as OPEC increases production that will exceed targets of 30 million a day. “While [we are] forecasting oil prices over the next few months to be near $40 a barrel, or roughly where they are trading today, there could be another 50% to fall,” they note.
Worse, Saudi Arabia is still determined to drive US shale producers out of business.
And there’s looming supply from Iran, assuming sanctions are lifted as part of an agreement with the U.S. That could increase supply by another 400,000 barrels a day by March 2016, and another 200,000 barrels a day by June, creating much more supply than we really know what to do with.
The greatest problem we’re facing is that surplus oil inventory is at its highest level in about 10 years thanks to a rapid increase in production, according to an OPEC Monthly report. That simply tells us it’s far too early to seek a bottom in oil prices.
Until we work off the excess supply – and demand picks up – lower oil prices will remain.
What’s very telling is the number of oil vessels just sitting in the waters. Just off the shores of the U.S. are more than 100 million barrels just waiting for come in, with 20 million in the Gulf of Mexico…
Even China has run out of storage facilities for oil.
Smart investors are using the news to prep for lower lows in the space, as supply continues to strongly outweigh demand.
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