With momentous events unfolding on the World stage, the oil market continues to evolve at a glacial pace. Global total liquids production was 96.29 Mbpd in August, down 630,000 bpd from the June peak. But with oversupply running at over 3 Mbpd during the second quarter, there is still a long way to go to rebalance the system. Production in OPEC, Europe, Russia and E Asia is stable with no sign of turning down. In fact, Norway and the UK appear to be skipping annual maintenance this summer and European production is up 420,000 bpd compared with a year ago. The only region showing a marginal production decline is N America where production has fallen 580,000 bpd from the April peak.
I believe the stalemate will be broken in October. The oil price chart is forming a “head and shoulders” pattern, and if the price tests the recent August lows the moment of truth will arrive. Barring major events, it is difficult to imagine the price rising from here, near term. I therefore anticipate the price to break to the low side with significant losses. This is required to restore balance to the system.
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