A renewed weakness in 2015 can be expected for Crude Oil despite a seasonal pickup triggered by refinery turnarounds concluding in November. The reason for this weakness can be attributed to the medium-term trend of non-OPEC supply growth expanding at a faster rate than total demand growth, a report by Deutsche Bank said.

The decline in oil prices is substantially supply driven, with Saudi production remaining largely unchanged as Libyan production has risen. The widening discount of the Saudi-controlled Arab Light price versus the Oman/Dubai average suggests a move to preserve market share.

The likelihood of a unilateral Saudi curtailment has receded despite low prices as statements from Saudi officials indicate that they are prepared to tolerate a period of lower pricing in order to stimulate discipline across a broader cross-section of supply both in other OPEC members as well as non-OPEC producers.

Taken in concert with what appears to be a sluggish response from OPEC unfolding, the supply-demand landscape will be fundamentally weak through the end of 2016. In fact not only is non-OPEC supply growth forecast to exceed global oil demand growth next year and into 2016, but are also faced with the increasing risk of a rapid strengthening in the US dollar. Indeed last week DB’s FX Research upgraded its targets on the US dollar such that it sees EURUSD falling to 0.95 by 2017.
Source: Deutsche Bank