Oil Prices to Continue Sliding Amid Weak Economic Recovery

As the Western Hemisphere experiences a mild winter, the downward pressure on crude oil prices will persist, driven by a slow economic recovery worldwide. According to the London think tank Center for Global Energy Studies (CGES), oil prices will continue to slide due to a poor outlook for economic recovery, despite remedial measures taken by governments. The current price of crude oil remains under $74 a barrel on the New York Mercantile Exchange.

CGES attributes the continued decline in oil prices to an oversupply of oil in the market, which has resulted from OPEC member countries producing more oil than their allocated quotas. The center estimates that OPEC member countries could be producing up to 800,000 barrels a day more oil than they are allowed under their quotas. Additionally, Russia has increased its oil production, and production from the Caspian Sea has been growing steadily. Non-OPEC oil supplies have also risen, with increases in the United States, Brazil, and Colombia contributing to the overall oversupply. As a result, the pressure on oil prices to slide further is likely to continue.

Key Takeaways:

• The mild winter in the Western Hemisphere will continue to exert downward pressure on crude oil prices, already weak amid a slow economic recovery worldwide.
• OPEC member countries are producing more oil than their allocated quotas, resulting in an oversupply of oil in the market, with up to 800,000 barrels a day more oil produced than allowed.
• Russia has increased its oil production, and production from the Caspian Sea has been growing steadily, contributing to the oversupply.
• Non-OPEC oil supplies have risen, with increases in the United States, Brazil, and Colombia contributing to the overall oversupply.
• The continued oversupply of oil will likely lead to further declines in oil prices unless consumption grows to draw down the stocks.
• The center notes that the current reinvestment of floating stocks (100 million barrels of products alone) is placing additional pressure on oil prices, which are likely to slip back in 2010 unless these stocks are reduced.

Statistics:

• Up to 800,000 barrels a day more oil is being produced by OPEC member countries than their allocated quotas.
• Non-OPEC oil supplies have risen by around 570,000 barrels in 2008 compared to 2007.
• The excess crude oil is being stored in tankers off the coasts of major oil-consuming countries.
• Floating stocks of oil products have reached 100 million barrels alone.

Sources:

• Center for Global Energy Studies (CGES) - Monthly Oil Report
• United Press International (UPI) - 2009