West Texas Intermediate hits a fresh 5 year low
West Texas Intermediate (WTI) continued its slide this week, hitting a fresh 5 year low. This week's sharp decline was precipitated by the meeting of OPEC and non-OPEC members in Vienna on Wednesday and Thursday. Markets were expecting consensus on production cuts which did not materialize. In fact, OPEC currently produces about 1 million barrels per day more than the prescribed quota, signalling its inability to control crude oil supply. The market was looking for core OPEC members, such as Saudi Arabia, Qatar and Kuwait to voluntarily reduce output and absorb some of the short-term oversupply. OPEC currently produces about 40% of the world's oil supply.
The world currently produces about 90 million barrels of oil. Mature economies, such as Europe, Japan and the US have seen declining oil consumption for the past decade due to improved efficiencies in transportation and slow economic growth. Crude oil consumption in China has not grown as fast as projected, keeping a cap on crude oil demand. Supply currently outstrips demand by about 1.5 million barrels per day. Chinese crude oil stockpiles have reached recover levels. The US currently stockpiles 1.07 billion barrels of crude oil, or 1.8 billion barrels of petroleum products (including gasoline and distillates). Supertankers are in high demand, with countries opting to store crude on floating ships since on-shore storage tanks are already filled to capacity.
Many oil-producing countries, including Libya, Iran, Russia, the US and Canada are projecting increases in crude oil production. The currently supply/demand imbalances show no sign of abatement any time soon. The only hope for improving crude oil prices would be a major production disruption or accelerated growth in the emerging markets. Crude oil traders are betting neither is likely to happen any time soon.