Currency analyst

Oil: struggling to achieve market equilibrium

Oil prices have risen today as many analysts said that oil supply is not as superfluous as many believe. The global inventories are dwindling; the winter heating season is knocking at the door, so, the oil demand could increase significantly due to these facts. But whether it’s so, let’s figure it out.

Global inventories increased by 17 million barrels to 5.618 billion in the third quarter of 2016. According to the estimates, it’s the smallest build since the 4th quarter of 2014. U.S. crude oil production averaged 9.4 million bpd in 2015 reduced by 0.7 million bpd in 2016.

All eyes will be directed at the upcoming OPEC meeting scheduled for November 30 for the confirmation of the current bullish trend in oil market. The main oil producers are going to discuss an output cut of around 1 mln barrels per day. Russia promised to take up the cartel’s initiative of the output freeze agreeing to reduce its share in the global oil market. If they manage to negotiate the conditions of oil cut, we may expect oil prices to rise in the next consecutive months.  

Despite the potential cut in oil production, many believe that all these attempts to balance supply and demand in the oil market are worthless, as the second component of the market equilibrium (the oil demand) is decreasing precipitously, especially in Asia. China is going to reduce its oil production as it was said by commerce ministry on Tuesday. India, the second biggest country in the region, is also trying to somehow curb its demand (the Indian demand has fallen 0.7% in September in comparison to the same data in this month last year).

From all has been said we may conclude that there could be a slight increase in oil demand caused by seasonality, but it will unlikely last long, as more and more countries are striving to reduce their dependence on this type of fuel. 

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