Huge inventory overhang continues to weigh on oil prices

14 July 2016

Brent crude price dips in early July as Saudi energy minister seeks $50-plus prices

Concerns over the huge global overhang of crude stocks continued into the third quarter of 2016, as the Brent crude price failed to move above $50 a barrel.

After gaining since the start of the year, the price largely stabilised between $48 and $52 a barrel throughout June, but fell to fresh two-month lows in early July.

Saudi energy minister Khalid al-Falih said the global oil sector needs an oil price of more than $50 a barrel to sustain investments over the long term and find a supply-demand balance.

Although markets were rebalancing due to lower production by higher-cost oil wells in North America, Al-Falih said it would take a long time before the inventories are reduced.

In its July monthly oil market report, the Paris-based International Energy Agency (IEA) warned that the huge supply overhang continued to weigh on prices.

The IEA noted that non-Opec production is expected to fall by 900,000 barrels a day (b/d) in 2016, but the Middle East’s output rose last month to a record 3.1 million b/d.

US production is forecast to decline further next year, but the rate of decline is expected to ease and could bounce back quickly if prices show further signs of recovery. Indications that the US shale oil industry is adapting to lower prices could add further downward pressure on sustaining a $50-a-barrel threshold.

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