Quotes from the news wire:
Oil continues to dominate road transport demand, despite an increase in consumption of biofuels, electrification of mobility, with the partial exception of two and three wheelers, makes only limited inroads. This pathway suggests little change in Southeast Asia from today's congested roads and poor urban air quality.
Although market balance is upon us, the existence of very high oil stocks is a threat to the recent stability of oil prices, although stocks are close to topping out, they are at such elevated levels, especially for products for which demand growth is slackening, that they remain a major dampener on oil prices.
Any changes to our current 2016 global demand outlook are now more likely to be upwards than downwards, as gasoline demand grows strongly in nearly every key market, more than offsetting weakness in middle distillates, slower demand growth in OECD (Organisation for Economic Co-operation and Development) countries is not unexpected; it represents a return to the norm.
If there is to be a production freeze, rather than a cut, the impact on physical oil supplies will be limited, with Saudi Arabia and Russia already producing at or near record rates and very little upside seen apart from Iran any deal struck will not materially impact the global supply-demand balance during the first half of 2016.
Although we do not formally forecast OPEC oil production, in a scenario whereby Iran adds 600,000 bpd to the market by mid-year and other members maintain current output, global oil supply could exceed demand by 1.5 million bpd in the first half of 2016, while the pace of stock-building eases in the second half of the year as supply from non-OPEC producers falls, unless something changes, the oil market could drown in over-supply. So the answer to our question is an emphatic yes. It could go lower.
For this reason, producers are likely to grow still more competitive on pricing, sour crude markets appear especially oversupplied with discounts versus sweet grades widening. Europe is awash with competing sour crudes from the FSU (former Soviet Union) and Middle East and U.S. sour crudes remained depressed by refinery maintenance.
This surplus crude provides some relief, with OPEC's spare production buffer stretched thin as Saudi Arabia - which holds the lion's share of excess capacity - and its Gulf neighbours pump at near record rates, the shock absorber provided by oil stocks is no longer restricted to just crude. As refineries ran flat out to meet soaring demand for gasoline in top consumers the United States and China, distillate inventories ballooned as a consequence.
This massive cushion has inflated even as the global oil market adjusts to $50 per barrel. Demand growth has risen to a five-year high of nearly 2 million bpd... But gains in demand have been outpaced by vigorous production from OPEC and resilient non-OPEC supply - with Russian output at a post-Soviet record and likely to remain robust in 2016 as well.
The big story this month is one of tightening supply, with the spotlight firmly fixed on non-OPEC, oil's price collapse is closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea, which may result in the loss next year of half a million barrels a day - the biggest decline in 24 years.
Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks. At the same time, producer hedging has reportedly gone steeply up, as companies took advantage of the rally to lock in profits, it would thus be premature to suggest that OPEC has won the battle for market share. The battle, rather, has just started.
U.S. stocks may soon test storage capacity limits. That would inevitably lead to renewed price weakness, which in turn could trigger the supply cuts that have so far remained elusive, while the U.S. supply response to lower prices might take longer to kick in than expected, it might also prove more abrupt.
Not only have product prices lagged those of crude during the selloff - as is common in a downturn - but they have raced ahead of them in the rebound, keeping refining margins remarkably firm, and supporting unexpectedly strong throughputs in once-depressed refining centres such as Europe and OECD Asia, product demand has shown signs of life, with even European demand emerging from a secular decline to show strong growth of 3.2 percent in December and 0.9 percent in January.