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In its monthly oil market report, issued Jan. 15, OPEC said it expected even less demand for its oil in 2015, but added that the growth in oil supply in the United States also will slow.
The report said demand for the cartel’s crude oil would be 28.8 million barrels per day this year, a step down by 100,000 barrels per day from the estimate in its previous market report issued last month in Vienna. At its meeting in November, OPEC decided not to cut output below a 3-year-old limit of 30 million barrels per day.
There will be a slight rise in demand in some areas – North America and countries in Asia other than Japan and China – but OPEC said that demand will be satisfied by oil being produced in countries that aren’t members of the cartel.
This wasn’t good news for oil markets. At first the price of oil rose. Traders evidently linked lower US production with an expected drop in investment in the American shale oil industry. Even with lower global demand, as forecast by OPEC, that translated into a net boon for oil.
Just after the report was released, Brent crude immediately rose by 2.4 percent in London, and West Texas Intermediate crude 4.4 in New York. By day’s end, however, Brent closed down more than 2 percent, and WTI lost 4 percent of its value, adding to the approximately 60 percent drop in global oil prices since June.
Here’s how OPEC’s economists put it in their 100-page report: “The main factors for the lower growth prediction in 2015 are lower oil price expectations, the declining number of active rigs in North America, the decrease in drilling permits in the U.S. and the reduction in international oil companies’ 2015 spending plans.”
The report increased its estimate for 2015 US production to 13.81 million barrels per day, up from 13.72 million in its December report. But OPEC estimates that the growth of the US oil supply over the entire year will be lower, prorated at 950,000 barrels per day, compared with 1.05 million.
Independent analysts interpreted the OPEC report as bad news. The New York investment bank Jeffries Group cut its forecast deeply for the average price of Brent crude from $72.25 per barrel down to $50.25 per barrel “to reflect what will likely be an oversupplied market through at least the first half of 2015,” analyst Jason Gammel told The Wall Street Journal.
Bank of America Merrill Lynch did the same. It forecasts Brent and WTI falling to $31 and $32 per barrel, respectively, by the end of the first quarter of this year as the oil glut grows.
As a result, oil prices, which are now at their lowest in nearly six years, will keep declining in 2015 as “bearish sentiment in the oil market persists as it faces an increasing overhang of at least 1 [million barrels per day],” the OPEC report said.
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com