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Higher Oil Prices Likely To Happen Sooner Than Later

Summary

The IEA has released projections showing large deficits in oil production versus demand for 2016 and 2017.

The Saudi Oil Minister has announced the Kingdom will cooperate with its fellow OPEC members to help "stabilize" the market.

The fundamentals with OPEC cooperation should fuel an oil rally well into 2017.

The supply/demand fundamentals of the oil market have been rapidly shifting toward the bullish side during 2016 and will continue to do so in 2017. The IEA (International Energy Agency) now forecasts 2016 global production to decrease by 900,000 barrels per day (bpd) and consumption to increase by 1.4 million bpd, creating a whopping 2.3 million bpd deficit. The supply/demand shortfall is projected to continue into 2017 with production rising by 300,000 bpd, but consumption increasing by more at 1.2 million bpd, leaving a 900,000 bpd hole of excess demand. Added to this, the Saudi oil minister stated on August 11th that Saudi Arabia would work with other oil producers, both OPEC and non-OPEC, to help "stabilize" prices.

The inability of the oil market to fulfill ever-increasing demand (up on average by 1.6 million bpd between 2009 and 2015) is inevitable this time around as it has been over and over again in the last several decades (there tends to be an oil price collapse every five to seven years followed by a rebound to sometimes much higher prices than the previous peak). This happens because while global demand increases at a fairly steady rate, supply tends to come online in big increments (what mathematicians would call a step-wise function) usually because of discovery of major new fields. New production from the mega oil fields of the North Sea, Gulf of Mexico and the North Slope of Alaska is what stopped the 1970s oil rally and kept prices mostly depressed until 1998...


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