Analysts Says OPEC Must Cut Supply to Balance Oil Markets

October 15, 2012 10:07 AM EDT
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Analysts at Canaccord Genuity believe the apparent supply demand balance in the oil markets is a result of "non-recurring" demand.

"In our view, the preponderance of this imbalance the first half of the year was absorbed by non-recurring storage that includes the Chinese SPR (80 Mmbbls), Saudi Arabian stocking prior to the institution of Iranian sanctions (40 Mmbbls) and Iranian floating storage (20 Mmbbls)," said an analysts at Canaccord.

"Accordingly, without this incremental demand, the oil market would have experienced 0.8 Mmbpd greater over supply, which probably would have lowered Brent oil prices $10 relative to the prices evidenced the first half of the year," continued the analyst.

As non-recurring demand fades, analysts think OPEC doves (Saudi Arabia, Kuwait, UAE) will need to cut production to reduce supply accommodation.

Crude oil is trading lower early on Monday, with WTI just above $90 and Brent near $114.

United States Oil ETF (NYSE: USO) and iPath S&P GSCI Crude Oil Total Return ETN (NYSE: OIL) are lower by 1.7 percent.

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