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Saturday, 5 December 2015

Killing them softly

Killing them softly

Oil importing countries like India, heaved a sigh of relief when OPEC decided against production cuts or raising their oil prices. So we still have some months to go before crude oil crosses $ 70 per barrel. So what are you thinking, oil is going to hover around $40 for eternity? The recent OPEC meet has forecast global economic growth at 3.4% in 2016 and the demand is expected to outstrip supply by mid 2016.  In addition to that demand for OPEC crude is expected to rise by 1.2 million barrels per day to average 30.8 million barrels per day in 2016.

But how will this projection come true. This is no calculated projection or estimation but a well laid out strategy. On 3rd December WTI crude breached $ 40 per barrel and as per OPEC’s estimation, non OPEC countries like US and Russia will face significant reduced production leading to contraction in oil supply. The number of oil rigs and capex has already fallen in US. Thus oversupply of crude oil by OPEC countries led by Saudi Arabia which controls one third of the total world production seems to be working. And by the middle of next year the 13 member cartel will again be in the driver’s seat charting course towards both higher market share and price. But with Iran entering the oil markets next year and refusing to adhere to any output cuts, the cartel is definitely not going back to its hey days of $ 100 per barrel.    

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