The Organization of the Petroleum Exporting Countries (OPEC) forecasts that demand for oil produced by the group will fall to 28.92 million barrels per day, which is 280,000 fewer barrels per day in 2015. This is the lowest the demand for crude oil has fallen in 12 years.
OPEC Lowers 2015 Demand Forecast as Crude Oil Prices Fall
Oil financial experts attribute this drop to the stagnation of the Chinese and European economies and an oversupply of crude oil. At the same time, the Energy Information Administration (EIA) in the U.S. has also announced a cut in global demand for oil in 2015 by 240,000 barrels a day, bringing demand to an estimated 880,000 barrels per day.
Toward the end of 2014, OPEC was adamant about maintaining its production levels at not lower than 30 million barrels a day. This decision, made on November 27 2014, led to an excess in oil production and a dramatic decline of the price of Brent crude by more than 40 percent.
US crude oil features are at an all-time low having dropped to 64.85, its lowest since 2009. According to the American Petroleum Institute (API), by December 2014, the production of oil in the U.S. had risen by 4.4 million and totaled 377.4 million barrels, although analysts had anticipated that production would fall by 2.2 million barrels per day.
Gareth Lewis, a strategist at the BNP Paribas bank in Paris, “There is a realization that the first half of (2015) is going to be very weak.”
Carsten Fritsch of Frankfurt-based Commerzbank also observed that, “Almost all the news are moving toward a weaker market. We have received very bearish data from the API and a very bearish Short-Term Energy Outlook by the EIA characterized by a sharp reduction in forecasted demand growth for 2015.”
Oil market expert at Natixis, Abhishek Deshpande further contended that, “Fiscal balances are a big problem for weaker members within the OPEC. It would not be surprising if they called for an emergency meeting to adjust the production levels at the start of 2015.”
The oil glut and the resultant dump on prices have not only affected weaker OPEC countries; low oil prices have in fact impacted 98 percent of all OPEC members as governments struggle to balance their budgets, according to Bloomberg.
Kuwait and Qatar are so far the only countries that are not yet feeling the impact of tumbling oil prices. Saudi Arabia is quite stable having accumulated up to three quarters of a trillion dollars for government expenditure in its treasury. Saudi Arabia, a leading OPEC oil producer, was at the forefront of blocking oil production cuts and has moved fast to acquire greater market share.
It is still not clear what OPEC’s plan of action is with regard to balancing the excessive oil production against a backdrop of lower demand, given that the next planned meeting is scheduled for June 5 2015.
OPEC members are divided on how to respond to the global surplus and falling prices. The cartel may still hold an emergency meeting before its June gathering, Algeria’s energy minister said Tuesday.
Market impact of tumbling oil pricesThe declining oil prices spell good news for some stocks and bad news for others.
Stocks for U.S. oil and energy production companies are set to benefit if prices stabilize in the range of $60 and $70, thanks to the companies’ efficiency in oil production. Continued growth of the U.S. and European economies will be helpful in increasing the stock value of these companies.
Other stocks that are set to increase in value include retailers of consumer goods, airlines and the overall transportation sector.
In the currencies market, currencies that are correlated to oil prices are expected to maintain a bearish outlook. These include the British Sterling, Euro, Canadian Dollar, Norwegian krone, and the Russian ruble.