Inventory levels are at record highs across the globe, and the OPEC price war has killed off any notion that the oil cartel will act to rescue prices. That means the only way markets balance out will be from a sharp contraction in supply from private sector drillers. So the spotlight shifts back to U.S. shale, where the IEA says OPEC’s decision to scrap its production target will force a more severe correction on supplies. The Paris-based energy agency warned that the medium-term will look more constrained on the supply side because of the fall in production and investment, but the markets will have to suffer through excess capacity in the short run. Related: Why Texans Might Soon Be Driving On Mexican Gasoline
Next week, the Federal Reserve could add a bit of pressure on oil markets when it moves to raise interest rates. That should put downward pressure on oil prices, but also spark some volatility in emerging market currencies. 2015 has been eventful, but the fireworks are not over yet.
By Nick Cunningham Of Oilprice.com
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