Oil 's rally should soon run out of steam - Commerzbank

The rally on the oil market should soon run out of steam, according to Barbara Lambrecht, analyst at Commerzbank. The three energy agencies are expected to stoke some disillusionment as they are likely to confirm that without lower OPEC production, supply will exceed demand for even longer as non-OPEC supply will expand again next year, she noted.

Key Quotes

“At around 52 USD, the price of a barrel of Brent is currently trading just under its 2016 high, reached in June, making oil a good 10% more expensive than before OPEC’s surprising announcement to cut production. We remain sceptical, however, that prices will stay well above 50 USD on a lasting basis, as the market will remain in oversupply as long as OPEC does not significantly reduce its production.”

“This should be confirmed by the major energy agencies in their monthly reports: all three had revised their forecast of non-OPEC supply upwards in September, with the International Energy Agency expecting an annual rise of non-OPEC supply of 400,000 barrels per day in 2017. Amid robust US production, which has not fallen since the summer and Russia’s production at new post-Soviet record levels, the agencies could be even more optimistic, especially as higher prices could give more momentum to shale oil production.”

“The supply surplus should therefore remain in place for longer even if the demand forecasts are unchanged. Against this backdrop, financial investors will probably scrutinize their net long positions that had recently increased further. The price of Brent should thus drop below 50 USD again by the end of the year.”