Thursday, December 18, 2014

Crude Oil: Anatomy of a Glut (excerpt)

We now have November data compiled by Oil Market Intelligence on global oil demand and supply. The data show that world crude oil revenues and outlays, at an annual rate, plunged by $1.1 trillion from June through November, down to $2.7 trillion. OPEC’s revenues are down at an annualized $409 billion over this period.

Global oil demand growth continued to slow. While the 12-month average rose to a record high of 92.8mbd during November, it was up just 0.7% y/y, the lowest since April 2012. The weakness is mostly attributable to the advanced economies of the OECD, where oil demand is down 0.8% y/y, while emerging economies’ demand is up 2.2%.

The big story, of course, is the surge in non-OPEC production in recent months. It jumped 2.8mbd over the past six months through November. It is up 4.4% y/y. That’s forced OPEC to reduce output slightly last month. US and Canadian output rose 1.1mbd over the past six months through November.

I expect that the plunge in oil prices will reduce global production quickly within the next few months, especially in countries with relatively high production costs. We predict that the price of a barrel of Brent will stabilize between $60 and $70 next year.

Today's Morning Briefing: Grand Central 24/7. (1) Fairy Godmother. (2) The FOMC will be even more dovish and patient next year. (3) Evans will get a vote next year, and two hawks are retiring. (4) FOMC clearly concerned about financial instability related to dropping oil prices, soaring dollar, and and rising junk yields. (5) Central banks succeeding in inflating wealth. (6) Their transmission mechanisms to their economies aren’t working so well. (7) Weak data stimulate PBOC to ease and Chinese stocks to soar. (8) ECB’s Coeuré pushing for QE. (9) November crude oil demand drowned in sea of oil. (10) Focus on market-weight-rated S&P 500 Energy. (More for subscribers.)

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