Oil prices have remained within a mid-range band of between $40 and $50 per barrel, for the last six months, after falling to a 13 year low of less than $30 at the start of this year, from over $100 a barrel in 2015. Several factors are contributing to present stability and among them stands out the fact that according to the International Energy Agency “demand growth is slowing and supply is rising.”
Last week, in Paris, the Agency released the monthly Oil Market Report, which presents its view on the state of the international oil market, including supply and demand projections for the next 18 months.
Demand weakness originates in the giant emerging market economies of China and India, while consumption has slowed down in advanced economies such as Europe and the United States. On the supply side, high cost oil production has been reduced in the United States by almost 500,000 barrels per day, as evidenced by the number of active drilling rigs, which in September reached 508, down 340 from last year. However, this reduction in production has been more than compensated by increases among low cost producers, such as Iraq, Iran, Kuwait and Saudi Arabia. The case of Iran is noteworthy, because with exports of 2.2 million barrels per day, it has reached the level of exports attained before effective international sanctions were imposed in 2012.
In these conditions, the International Energy Agency projects that oil supply will “continue to outpace demand at least through the first half of next year.”
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