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The Oil Market Remains Mired In A Difficult Situation

Summary

The oil market will achieve a balance between supply and demand by the gradual growth in demand.

A decline in US production of shale oil, in our opinion, can stabilize the oil market.

The slowdown in global economic growth is closely linked to the situation in the oil market, and many people understand this.

The representatives of OPEC forecast a reduction of excess oil production down to 200K barrels per day due to the gradual stabilization of the market. Based on the OPEC's data, the world's oil consumption in Q1 2016 amounted to 93.15M barrels per day. This is 2.52M barrels per day less than global production, which amounted to 95.67M barrels per day. For comparison, the excess of oil production in Q4 2015 totaled 2.3M barrels per day. This forecast is based on the belief about the further reduction in the rate of oil production and hopes of increasing consumption.

(Source: OPEC)

Based on the fact that almost all OECD countries and other emerging economies are eager to actively encourage the acceleration of the growth rate of their economies through monetary measures and fiscal consolidation, in Q2 and Q3 2016 we should expect growth in both exports and imports of various goods. Consequently, the oil consumption should also increase.

Oil production is also declining due to the significant decrease in profits and the lack of profitability of production in hard-to-reach locations. High oil prices had encouraged oil producers to develop production in remote fields, increasing both revenues and costs. However, in the current situation, oil majors have to reduce production in such places.

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