The optimism in the oil market waned on Tuesday as crude oil slipped over 4.5%. In anoher blow to oil prices, GAM Chief Economist, Larry Hatheway, and Investment Director Roberto Cominotto said they believe that realistically, oil growth for the current year will be by one million barrels a day. However, both of them cautioned that as the oversupply was 1.5 – 2.0 million barrels a day, increasing demand would not be sufficient to re-establish international demand – supply equilibrium.
Though there is an oversupply of oil, the two economists do not think that the existing level of oversupply is enormous. They also think that the imbalances were neither extreme nor consistent especially in the context of the market forces moving towards equilibrium by the middle of this year. GAM investment experts believe that fundamental support to crude prices is close, thus providing a way for reversion to a sustainable price of more than $60 a barrel in the next year.
However, the two economists warned that the drop in oil prices might not be quite over yet. Their worry is that the removal of sanctions on Iran pressured with more supply especially during seasonal refining maintenance would hurt demand in the March quarter.
Supply Will Decline
Both Hatheway, and Cominotto were confident that the supply of oil will fall though some Middle East producers might not participate in those efforts. They felt that a supply reduction around $30 per barrel by some OPEC countries could not be ruled out though the group remains strong currently. They too have budget deficits which are widening.
Referring to China, GAM investment experts cited gasoline demand which advanced 11% in 2015 while car sales have jumped in recent months. Therefore, they see that the demand for oil in China would not slow down materially this year. The two also think that the recent report of freezing production at January levels by some OPEC nations and others would not alter the situation materially, as OPEC is already operating at peak output anyway.