welcome to ft markets oil prices remain
under pressure
even though US shale production looks to
have plateaued demand remains very good
at more than a million barrels a day and
OPEC members are warning about the
implications of investment cuts on
prices oil is still a very weak market
here to discuss what's happening is my
commodities colleague David Shepherd
David we've heard this week from OPEC
kingpins such as Saudi Arabia that the
lack of investment by big oil companies
at the moment he's sort of setting us up
for a surprise spike in future yet when
we look at the market US oil prices went
below $40 a barrel investors don't seem
to be listening what's happening I mean
why is the price so weak at the moment
is there one factor you can point to or
the markets somewhat divided but in the
short term the biggest overriding factor
is that there is just far too much oil
in the world inventories of crude oil
have ballooned in the last few months
the EIA the International Energy Agency
came out last week and said that in the
developed world oil inventories are
close to an all-time record of almost 3
billion barrels a day and that's a huge
amount which would take over a month of
non-stop world demand with no additional
production growth just to burn through
that's on its own as a result we're
seeing pressure on the front of prices
all the time which is making this market
very very difficult to break out of the
long-term downtrend it's been in okay so
I think we can see that in the chart
that we have here the inventory levels I
mean clearly that I mean that that gives
a really good graphic illustration of
the glut and the sort of overproduction
there and it's interesting as well
because demands actually been quite good
this year hasn't it I mean it's for 1.8
million barrels a day give or take
depending which agency you talk to yet
we're still seeing this huge rise in
inventories um I guess the question I
have now is how much storage is actually
left in the world in terms of storage
we're not yet tank tops at that level
per buy there's just no more room for
the crude or the refined products to go
into however we are getting closer to
that level many people think that
they'll be able to burn through a lot of
the Oilers winter comes on and demand
increases because of heating demand and
other sources but there are concerns
that already the infrastructure of the
world energy economy is started to be
strained we've seen in the last few
weeks
number of oil tankers at sea has started
to mount this isn't necessarily floating
storage as such but what you're seeing
is that ports and oil tanks it's taking
longer to get the oil into port just
because the sheer volume that there
isn't a world right now that's one
indication that this market remains
heavily oversupplied so could we be
heading for a situation where the price
has to move even lower I think we can
show it here u.s. oil price I think sort
of it's it's back to the sort of the low
of this year but at below $40 to
incentivize floating storage given where
tanker rates are at the moment we're
gonna have to see probably a much lower
price than that and I notice Goldman
Sachs yesterday saying there's a
possibility if onshore storage is filled
up we could go to $20 a barrel I mean is
that is that a real possibility there's
always a possibility in the short term
the oil price is fought for further $20
a barrel possibly not even for goldman
sachs themselves that's not their core
thesis they were just warning there is a
possibility as opposed to what they're
actually predicting right now what we
could see however though is that if the
front end ie the prices for immediate
delivery could fall a bit further
or those further out for delivery see in
six or seven months time they may rise
slightly to allow what is known as
floating storage which it means when you
put the oil onto a tanker buying it at
that cheap price selling it forward in
the futures markets at the higher price
here and that lets you capture the
difference between the spread as long as
the cost of hiring tankers is not too
high and of course at the moment the
cost of tankers has gone up because of
the sheer amount of oil and the water
okay well if we move beyond the next
three to six months and look at the
slightly longer term outlook if we bring
up the the next chart here we're looking
at US shale production is you can quite
clearly see there it seems to have
plateaued and is now starting to fall so
it does seem as if OPEC strategy of
letting the taps remain open and
pressuring high-cost supplies is
starting to work and we've also seen all
companies slash billions of dollars of
investments this year so are we setting
ourselves up as mr. naima the the Saudi
oil minister claimed this week for a
spike in prices one two year down down
the line that's where the biggest split
the market is right now yes we've seen
all this money come out but also while
we're seeing us she'll come off which of
course in many ways has been the poster
boy for the growth of this oil glut
that's coming down but the years of
investment a hundred plus dollar oil
from 2010 through to 2014 it's also
built up this backlog of projects which
are still going up forward and will
still continue to come onto production
in the coming years that means it's not
quite clear yet whether we actually
couldn't see a shortage three or four
years down the line which of course
trying to bend it that far in advance in
the oil market is anyone's game what we
could see however is that people have
been through this cycle before oil as we
definitively shown in 2014 remains a
booming bust markets of course then with
all the investment coming out now five
or six years out could be see a price
recovery absolutely could receive one
call for sooner very possibly but at
this moment in time the market is very
much split right now
Laura for longer is the mantra but the
biggest producers in OPEC are warning
their people don't invest we could see
prices shoot back up in the future thank
you David
so as we head into 2016 oil finds itself
in a tug of war between those who think
the price will remain lower for longer
because of the supply glut and those who
see a brighter future as the cutbacks
we've seen this year start to feed
through