There were no surprises in the outcome of the 168th OPEC meeting, with no action taken either to cut production or to raise the production ceiling in anticipation of accommodating Iran and Indonesia’s return to the OPEC fold.
Brent plunged over the last week finishing at a few cents above the 2015 lows of end-August. Halving the oil price has already had a material impact, both on demand (+1.4 million b/d in 2015) and supply. US tight oil has suffered monthly declines since April 2015 and is expected to decline by at least 0.3 million b/d in 2016.
The plan is deferral of these challenges to the next meeting in June 2016, by which time there will likely more clarity on the timing of Iran’s exports restarting and the potential volumes. Another six months is in store of the Saudi-driven strategy instigated a year ago of letting the market determine prices.
Saudi Arabia has made it clear that there will be no reduction in output unless other producers such as Iran, Iraq, and Russia also reduce theirs. Iran has said clearly it has no intention of cutting production until it regains 4 million b/d after sanctions are lifted. Russia and Iraq have also said they will not reduce supply to support prices.
It is going to be a long slog until H2 2016 with the oil market facing rising Iranian oil output and continued implied stock builds for H1 2016. The difference is US oil output is slipping into a year-on-year decline in late 2015 and this provides somewhat of a floor for oil prices as the market contends with the ongoing oversupply.
Global oil supply is forecast to decline slightly in 2016 compared with a record breaking projected increase of 2.4 million b/d for 2015 year-on-year. The OPEC meeting has not lead to any dramatic changes our forecasts, available in our monthly macro oils outlook.
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