As the Opec Plus members slowly unwind the production moving deep into the phased ramping up of oil supplies, early signs have appeared that the oil market could be well heading towards an oversupply situation. This is in sharp contrast to the sentiments on the floor just two months ago, when crude oil at$100/bbl was talked up and credible houses were calling it only “a matter of weeks”.
Over the years, particularly since the 2008 crisis, oil price prediction has been an extremely tricky business, with the likes of US EIA, IEA, Opec, Goldman Sachs and others humbled time and time again. Be that as it may, the key voices in the global oil market, Opec and the International Energy Agency have both hinted that the global oil market is finally moving towards a balance.
The overdrive stems from the fast-rising output from non-Opec members, as Opec+ continues to unwind the cuts. The demand continues to grow as well, but face headwinds as Europe sees a fresh rise in Covid cases, further fueling doubts over the growth momentum. The IEA in its latest monthly report said that the “world oil market remains tight by all measures, but a reprieve from the price rally could be on the horizon.”
The expectations of a halt to the bull rally are based around higher prices, as developing countries struggle to keep up with the demand at inflated rates, in a bid to balance the trade accounts. The market now expects as much as 1.5 million barrels per day of oil added to the global supply by the end of 2021, of which more than one-third is expected to be contributed by the USA alone.
On the other hand, Russia and the Kingdom of Saudi Arabia are on way to add a combined 0.8 million barrels per day in the meanwhile. Both giants are expected to cross 10 million barrels a day by December, for the first time in 20 months. Opec monitoring report expects the oil market to be in oversupply position by as early as next month. This alone could put brakes on the bull rally that has headlined the commodity markets for nearly over a year.
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