Flash Notes-Oil & Gas: Losing Sheen

Losing Its Sheen; Uneven Impact On Economies And Industries

    Oil prices have tumbled more than 30% to a multi-year low with Brent
    On the supply side, surging global oil production couldoutpace demand this year. Increased production from Libyaand Angola alongside uninterrupted supply from Iraq despitethe ongoing war with ISIS have pushed up OPEC’s total outputto slightly under 31m barrels a day, the highest this year and352,000 bpd higher YoY. Swelling US production on the backof its “Shale revolution” has also fundamentally changed theglobal oil equation and resulted in more-than-ample globalsupply.

    At the same time, demand has disappointed as global growthsputters. The International Energy Agency (IEA) estimatedthat the pace of expansion in oil demand for 2014 & 2015would be weaker than expected. This year, it expects demandto rise by 0.7m bpd to 92.4m bpd, 0.2m barrels less than itsprevious forecast. Demand for next year is expected to comein at 93.5 mbd.

    How Will OPEC Play Its Hand?Holding Cards Close To Its Chest For Now

    Despite the sharp fall in prices, OPEC (which controls c. 40% ofglobal production) appears reluctant to cut back production.Saudi Arabia, the largest OPEC producer has traditionally beenthe swing producer due to its large spare capacity and is thusseen as a wild card that could influence the direction of oilprices. It could choose to cut production to increase prices ortolerate lower prices, which could disproportionally impactRussia, Iran and ISIS financially.