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Oil: Main weight continues to be production in excess of demand - BBH

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 12, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - Analysts from Brown Brothers Harriman explain the recent decline in oil prices and its possible impact.

    Key Quotes:

    “The main weight continues to be production in excess of demand. US output may be around 450k barrels less than the June peak, but inventories are still rising. API estimated crude stockpiles rose 6.3 mln barrels last week. The EIA, the official estimate is expected to be somewhat less though it recently revised up this year's output forecast.”

    “OPEC meets on December 4. Given the Saudi's rhetoric, a cut in quotas is not likely. What could surprise some observers is that OPEC may increase its quota. The issue is partly technical.”

    “Falling oil prices will weigh on headline inflation, and there is likely some bleeding into core measures. In the currency market, over the past 60 days, the Russian ruble and the Canadian dollar are the most sensitive to oil prices (correlations on the percent change basis are 0.75 and 0.55 respectively).”

    “Weak oil prices will continue to discourage investment. However, as we are argued before, with high fixed costs (which includes debt servicing), companies are incentivized to produce even at a loss. It will also encourage industry rationalization, which includes failures as well as mergers.”
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