The downtrend in oil will be long

During the first five months of the year, prior to the May meeting of OPEC, the oil price has passed, perhaps, through all possible states from a slump to a dizzying rise, as well as through the drift sideways within a narrow range. On the eve of a meeting of representatives of the cartel partners and oil prices were roughly in the middle of trading range for this year. Then there was the meeting itself: the agreement was extended for another nine months, the scale has not changed, Nigeria and Libya have not joined the treaty. On the background of the results of the meeting of oil fell sharply.

Pessimism said weak demand for gasoline in the United States, and the prices have gone even lower. So, the question is as follows: whether the oil will find a way out of this situation? The impression is that the newly formed downtrend will remain with us for the long haul, and although we still expect a market recovery to the end of the year, we did reduce our oil price forecast to $ 58 / bbl. to $ 50 / bbl. We believe that the price will start to grow steadily only when investors see - along with the reduction of production - decrease of exports from the OPEC countries and the reduction of hydrocarbon reserves.

Stocks of crude oil in the US will be possible to maintain the current pace of inventory reductions? Since the main source of global oversupply of the market is the United States, the success of OPEC's efforts to reduce the production is still largely dependent on the United States. Current loading refining capacity is close to the maximum from the beginning of the year mark, while it is possible that the seasonal demand for gasoline this summer will be weaker than usual. in the United States the pace of domestic oil production growth is more or less known, which means that the process of eliminating excess inventory will determine the future balance of imports and exports and demand from consumers. We continue to believe that in summer the rate of inventory reduction will accelerate, which will cause a decrease in imports from the OPEC countries and the growth of exports.

The positions of hedge funds: the mood at zero, but can he change? After it was announced production cuts, hedge funds too quickly regrouped in November. When prices are stuck at one point and have remained virtually unchanged over the past two months, fund managers have lost patience and began to close their long positions, which caused a fall in prices. However, we expect that the extension of the agreement on the reduction of production and a decrease in exports from OPEC in September will lead to a significant reduction in stocks in the OECD countries, which will contribute to the emergence of a new rally in the oil market.

Demand: as demand growth will support a reduction in the production 2P17? The situation with the demand in the global market as a whole is clear. This means that the greatest unknown in the oil equation - the scale of the annual growth in demand for oil. From the point of view of increasing demand are key countries are China and India, and they are to some extent determined by the market will continue to rebalance this year. In our opinion, these countries, as well as members of the OECD did not disappoint, but now more realistic to 2P17 seems scenario of moderate growth in demand.

Offer: how the increased supply will inhibit the process of reducing inventories? As a result of faster-than-expected growth in US production, Libya, Nigeria and Brazil, the price of oil grade Brent fell below $ 50 / bbl. Although output growth in these countries, we expect to continue, it will not be enough to stop the market rebalancing.