Driven by a massive and lingering imbalance ― excess of supply over demand ― global crude oil prices have fallen by more than 60% since mid-2014 to multi-year lows, and the impact has been significant. Producing companies have deferred or even cancelled development projects worth billions of dollars and industry job losses are estimated to be about 200,000 with more expected. Once-bustling oil patch communities have become near-ghost towns. Corporate profits among the oil majors slumped as much as 64% year-on-year; some upstream companies have filed for bankruptcy and both banks and investors that are exposed to them have been impacted.
Going forward, certain critical issues will likely define global oil prices.
The International Energy Agency, IEA, recently reported a massive global crude oil inventory of about 3 billion barrels. Estimates of the current global crude oil imbalance range from 1.5 million barrels per day (MMbpd) to 3 MMbpd. According to the Organization of the Petroleum Exporting Countries, OPEC, that value is about 2 MMbpd. With increasing supply and a sluggish growth in demand, there is at present, no real indication that the widening imbalance will be reversed any time soon. Global crude oil prices therefore, baring incidental effects, will likely remain low in the near term. Continue reading