Plunging Oil Prices Won’t Dent Supply in Short Term

Plunging Oil Prices Won’t Dent Supply in Short Term

International Energy Agency Provides Little Relief for Oil Bulls in Its Monthly Report

http://www.wsj.com/articles/plunging-oil-prices-wont-dent-supply-in-short-term-1418377137

By SARAH KENT

Updated Dec. 12, 2014 7:09 a.m. ET

The International Energy Agency slashed its forecast for global oil demand growth for the fifth time in the last six months on Friday and said the current slide in prices won’t dent global supply or hit demand, at least in the short term.

Despite a slide of more than 40% in oil prices since June, the Paris-based energy watchdog said it still expects a robust increase in production from nations outside the Organization of the Petroleum Exporting Countries next year.

“Barring a disorderly production response, it may well take some time for supply and demand to respond to the price rout,” the IEA said in its closely watched monthly report on the oil market.

Oil prices extended their slide following the IEA’s bearish forecasts, hitting levels not seen since the depth of the global recession in 2009. Brent for January delivery was down 0.8% at $63.22 on the Intercontinental Exchange in London, while WTI was down 0.7% at $59.23 in electronic trading on the New York Mercantile Exchange.

The IEA forecast that world oil demand will increase by 900,000 barrels a day in 2015, a downward revision of 230,000 barrels a day from the previous report and only a modest increase from this year’s increase in demand of 700,000 barrels a day, its weakest in five years.

Ordinarily, lower prices should encourage greater consumption, but the pain that oil-exporting economies are already feeling because of the price slump, combined with a sluggish global economy, is expected to offset any positive demand impact from the weak market, the IEA said.

Demand in Russia, a major oil producer, is expected to be particularly hard hit next year as a combination of western sanctions and sliding oil prices pummel the country’s economy.

Meanwhile, although oil companies are already slashing spending in response to lower prices, many of the projects expected to fuel higher production next year have already been paid for, pushing any impact on output into the future, the IEA said.

In the U.S., where high-cost shale projects are coming under intense scrutiny as oil prices plummet, there should be no production impact in the short term so long as producers maintain access to financing, the IEA said. Booming shale oil output is expected to push non-OPEC supply growth to a record high of 1.9 million barrels a day this year and though that will slow next year to 1.3 million barrels a day, that is not because of the lower price environment.

“Today’s oil spending cuts will dent supply—just not right now,” the IEA said, though it added that a deeper slide in prices could set back many producers.

A time-lag before oil companies respond to lower prices with weaker production may increase pressure on OPEC to cut its oil supply. The cartel last month decided not to cut its own output to bolster the market.

According to the IEA, the oil-producers’ group cut its oil production by 315,000 barrels a day in November, largely due to supply disruptions in Libya. However, at 30.3 million barrels a day, OPEC’s output remained comfortably above its agreed output ceiling of 30 million barrels a day, despite weakening demand for its oil.

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http://www.wsj.com/articles/investors-bet-on-recovery-in-oil-prices-1418053989

Investors Bet on Recovery in Oil Prices

Positions Taken on Expectations of Rising Brent Crude Prices Increase by 47% in Past Week

Updated Dec. 8, 2014 12:24 p.m. ET

LONDON—As oil prices continue to plunge, investors are already busy laying bets over a broader recovery in prices.

Net long positions taken by large investors that the price of Brent crude oil would rise increased by 47% over the past week, according to the Intercontinental Exchange Inc. Net long positions are calculated by the total number of bets that the price of oil would rise minus the number of bets that it would fall.

It is the highest net long position in four months, according to the data.

Investors increased the number of long positions—or bets that prices will rise—held by 11,391 positions to 212,075 as of Dec. 2, according to the latest Commitment of Traders report from the ICE. They cut the number of short positions—bets that the crude oil price would fall—by 19,912 to 114,799, it said.

Jack Malone, futures and options adviser at Chicago-based RCM Asset Management, said that oil prices may yet fall in the near-term, as investors fret about the huge volumes of oil sloshing around in global markets.

“Near term, I do believe that oil prices have lower to go because of the oversupply situation, yet the rising bets in Brent could reflect good opportunities in longer-term positions,” said Mr. Malone, who declined to discuss RCM’s investments in oil. RCM Asset Management has $80 million under management.

Oil prices slumped after the Organization of the Petroleum Exporting Countries opted on Nov. 27 to maintain production levels despite the near 30% decline in prices since June and the ample supplies available in global markets.

That sent the oil market into a frenzied bout of selling, and prices declined an additional 10 percentage points. Brent crude oil for January fell further on Monday. In early-afternoon trading in London the price was down 2.4% at $67.43 a barrel—a fresh five-year low.

Data published last Friday confirmed the increase in long positions. Investors in the Nymex market boosted their wagers that prices for WTI crude oil, the U.S. benchmark, could go up. Money managers added 9,807 wagers on rising prices while slashing 12,557 bets that prices would fall, according to data from the Commodity Futures Trading Commission published on Friday.

Tariq Zahir, managing member of New York-based Tyche Capital Advisors, cautioned against reading too much good news into the data. The market may already have swung back sharply given the collapse of prices since the Nov. 27 decision, said Mr. Zahir. Tyche’s positions are skewed toward prices falling further, he said, adding that he believes the net long positions could have reversed just as quickly in the week since Dec. 2.

“Let’s not forget this data is backward looking,” said Mr. Zahir. “In a normal market, this could signal a potential recovery in Brent, but by now I wouldn’t be surprised if these positions have already been taken off by investors.”

ICE’s Commitment of Traders report is published every Monday with data from the previous Tuesday.

Morgan Stanley on Monday lowered its forecasts for crude oil prices for the next five years, reiterating some concerns that the supplies are likely to keep prices down for some time.

For its base-case scenario, the U.S. bank sees oil averaging $70 a barrel during 2015, down nearly $28 from its previous forecast. In a worst-case scenario, prices next year could be down 38% on average. The bank sees prices gradually recovering to an average of $100 a barrel in 2017, but this is only $4 below the previous forecast.

Still, Morgan Stanley’s Adam Longson said he doesn’t see stress levels matching those of prior oil crises. “Estimates of the oversupply are vastly overstated versus true crude balances,” said Mr. Longson in a research note.