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How OPEC Just Crushed Oil With One Chart

Just when you thought it couldn't get any worse - amid supply gluts, production surges, market share scrambles, and demand disappointment - it does. OPEC this morning confirmed not only no change in the already weak global demand picture but the current oil inventrory surplus is the largest in at least a decade. This has driven WTI prices down close to a $41 handle this morning (from over $48 a week ago) as simply put, there's too much oil and OPEC's grand strategy for solving this imbalance - pray for a colder winter...

Crude is down 7 of the last 9 days...

 

As Bloomberg reports, OPEC's new statement does not bode well for the short- or medium-term future...

Surplus oil inventories at highest level in at least a decade on increased global production, OPEC says in Monthly Oil Market report.

 

Stockpiles in developed economies 210m bbl higher than their 5-yr avg

 

Compares w/ 180m bbl overhang in 1Q 2009, which is only other occasion in past 10 yrs when inventory surplus has surpassed 150m bbl

 

Excess supply may be pared in coming mos on slowing non-OPEC supply, rising demand for winter fuels

 

...

 

Non-OPEC supply to contract next yr for 1st time since 2007; down 130k b/d to 57.11m b/d

 

OPEC keeps 2015, 2016 fcasts for global oil demand unch.

And so here, in one simple chart, is why this will not end well... There's too much oil!!

Supply and demand growth so far in 2015...

 

 

And OPEC's strategy to 'solve' this? Pray for a colder winter!!

The recent decline in oil prices has encouraged additional oil demand. It has also provided a challenging market environment for some higher-cost crude oil production, which has already shown a slowdown. Moreover, strategic oil reserves have grown as some countries – including China and India – have taken advantage of lower prices to add to their reserves, a trend that is likely to continue.

 

In addition, a colder- or longer-than-expected winter, as well as better-than-projected economic activities, could support incremental demand. This would help alleviate the current overhang and support a recovery of crude oil prices in the coming months.

Charts: Bloomberg