By Kelli Ainsworth
Geopolitical developments, including China’s economic slowdown, the Iran nuclear deal and the potential lifting of the US ban on crude exports, will likely continue to be factors that prevent the oil price from recovering significantly in 2016. The effect these developments will have on the global oil supply and demand balance is unclear, which only adds more uncertainty to an already unpredictable market. “The level of volatility has increased substantially,” said Sam Ori, Executive Director of the Energy Policy Institute at the University of Chicago (EPIC). “That’s being driven by real uncertainty in the fundamentals of the oil market.”
Global oil supply exceeded demand by a massive 2.4 million BPD during the second quarter of 2015, according to the International Energy Agency (IEA). As long as the market remains oversupplied, it’s unlikely that events on the supply side will trigger any hikes in the oil price. “At a minimum, when I look at the how the fundamentals shake out for next year, I don’t see a price increase,” Mr Ori said. “It looks like we’re going to have this global supply overhang through 2016.”
Further, he continued, Iran could begin putting an additional 500,000 BPD on the market as early as the first half of 2016. OPEC, which has so far refused to cut its production quotas, is unlikely to change this policy to accommodate Iran…