Oil Market: Little room for comfort – HSBC

By FXStreet FXStreet (Delhi) – Research Team at HSBC, suggests that following the 60% drop in crude prices since mid-2014, the market seems to be fixated on the risk of further falls.

Key Quotes

“This is understandable given a backdrop of firm supply pressure from OPEC, large inventory overhangs and the potential for increased Iranian exports next year. However, we believe investors should be increasingly concerned about the risks of a sharp move higher in crude prices. Not only should the extent of oversupply fall dramatically in 2016, but low spare capacity within OPEC means that buffers against unexpected supply disruptions are very limited. Moreover, if OPEC abandons its policy and reduces output, prices could well rally considerably. As far as tail risks go, they seem skewed firmly to the upside, in our view.”

“Producers outside OPEC have responded much more quickly to lower oil prices than the market was expecting. The most striking evidence of this is the relentless series of downgrades to non-OPEC supply growth estimates. Looking at the monthly evolution of the US Energy Information Administration’s (EIA) forecasts, 2016 non-OPEC supply growth was seen at 0.8mbd in February. Just nine months later, the forecast points to a y-o-y decline of 0.3mbd. The …read more

Source:: FX Street