A Quick Look At The Oil Supply/Demand Picture

in Commodities/Economy/Emerging Markets by

No matter how little sense it actually makes to talk about “freezing” production at record levels, people are going to keep talking about it anyway. The upcoming OPEC meeting in Algiers is what the oil bulls are hanging their hats on as though they don’t remember what happened earlier this year in Doha.

It’s kind of like bringing all the worlds largest cocaine producers to a meeting. Some of them hate each other, some of them want to kill each other, and everyone is suspicious of everyone. It’s like Thanksgiving dinner with the inlaws you can’t stand. Only instead of listening to everyone catch up while you chew on typically dry turkey, you and your inlaws are setting the price for the most financialized commodity on the face of the planet.

Meanwhile, half a world away, US producers just won’t accept reality. Sure, you can start pumping again at ~$55 but as soon as you do, the price is going to go right back down. And God only knows how much floating-rate debt those companies have that will be subject to reset amid LIBORs stubborn rise.

For what it’s worth, here’s the take from Goldman’s Jeff Currie:

“Goldman Sachs global head of commodities Jeff Currie says  reaching an agreement in Algiers this mo. would send a signal of cohesion after appointment of new Saudi oil minister Because shale oil can be brought on and shut off relatively quickly, a sudden supply cut or demand increase won’t have a major effect on price. Goldman’s “base case” is there won’t be a “substantial” return of disrupted production in places such as Libya and Nigeria.”

Have a look for yourself at the demand/supply picture.


(Chart: Citi)


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