The International Monetary Fund’s oil prices have tumbled and show no signs of immediate improvement, particularly as once embargoed Iranian oil begins flooding into the market place this year; officials at the International Monetary Fund (IMF) and the World Bank are preparing for the worst.
Oil inventories will continue to rise, but the momentum is slowing. The following are some observations as to how we got here and how we’re going to get out.
9 reasons why oil has taken so long to bottom:
1. OPEC increased production in 2015 to multiyear highs, principally in Saudi Arabia and Iraq where production between the two added 1.5 million barrels per day (mb/d) to inventories after the no cut stance was adopted.
2. Russian production increased in 2015 to post Soviet highs.
With oil falling below $30 again, the Export-Import bank has moved in an effort to help small energy companies avoid default. The bank announced its efforts to work with businesses to fight the fall in oil prices and the concurrent revenue decline. Speaking to CNBC, an American financial cable news channel, Ex-Im Bank Chairman Fred Hochberg said the bank has committed itself to making sure that smaller companies have the liquidity and financing necessary to avoid default.
Equities and oil continue to be moving in the same direction. During the first few weeks, they were moving down together and now up together. It is frustrating for asset managers. Large cap and small cap stocks are moving together as if everything is being tarred with the same brush.
We continue to try to tease out the relationship between equities and oil prices, but there is some underbrush needed to be gotten rid of before we can have a clear space to share our tentative conclusion.
Oilprice.com recently spoke with Carl Larry, Director of Oil and Gas at Frost & Sullivan, a consultancy that conducts research on oil and gas markets, to get his thoughts on the state of oil in 2016.
Oilprice.com: I saw that you were on Bloomberg in December, and you said that you thought oil would go to the low $30s per barrel, which was a good call at the time, before OPEC would rather relent. Do you see any chance that OPEC can actually coordinate any production cuts?
Barclays, Pearson and Virgin Media have all announced significant job cuts as part of a growing pressure to cut costs, adding up to more than 6,000 job cuts in total. Firms are increasingly turning to cost-reduction strategies as a coping mechanism for competitive and difficult economic conditions.
However, while these strategies help to reduce costs in the short-term, these cuts can have much bigger and fundamentally important implications for the identity of the firm and their long-term competitiveness.
The announcement of over 1000 job losses at Tata Steel – the vast majority at the Port Talbot plant in South Wales – has understandably provoked heated debate. Yet this is just the latest incident in the industry’s spiral of decline, which has recently seen redundancy plans made at other companies including SSI, Caparo and Sheffield Forgemasters. The future of the industry in Wales, and other regions across the UK, is in jeopardy. In addition, there has been no shortage of suggestions as to what could, or should, be done.
There are three big questions here.
Every year seems like an accelerated version of the previous one. Every year we think we have reached the peak and then following year comes, paling everything before it.
Will 2016 be the same? Every available sign suggests so. We might be worried about a potential new bubble burst or slowdown on stock markets, but this will not stop new ideas, business models, or new opportunities from emerging.
Here are my nine bets – what will change in 2016 in business, technology and social.
The World Economic Forum Meeting at Davos, Switzerland this year is all about navigating a path through the “Fourth Industrial Revolution”. Preceding industrial revolutions centred on machinery, electrified mass production, and computers. The fourth premise is on emerging breakthrough technologies based on artificial intelligence, nanotechnology, brain research, robots, the internet of things, and much else.
The price of oil keeps moving in one direction – down. Even political tension between Iran and Saudi Arabia (historically a cause of price rises) has not stopped the drop. It may come as a surprise to some, but it drives home the point that it is not politics but market fundamentals that set prices.
