The Week In Hindsight, 11 July 2014

Brent and WTI crude fell this week as crises in Iraq and Ukraine, once again, continued to recede from the minds of investors.

Rising supply was also a factor in the week’s price declines as Libya reopened its second largest oil field and two export terminals which, according to Commerzbank Corporates and Markets, has the potential to increase the nation’s output from 200,000 barrels per day to nearly 800,000 barrels per day.

This, combined with the still relatively intact export capability of Iraq are likely to weigh on prices over the days ahead as investors continue to unwind a record number of long positions in Brent and WTI futures.

While supply seems set to rise steadily over the months and quarters ahead, OPEC projections for 2015 see demand little changed from 2014. The group expects a minor reduction of 310,000 barrels per day down to 29.37 million Bpd.

Although the cocktail of rising supply and falling or stagnant demand is normally conducive to lower prices,  there is a limit to how much further prices are likely to fall in the current environment.

While crises in Iraq, Ukraine and across the middle east have receded from the forefront of the market’s focus, these conflicts have not gone away and consequently, continue to present the risk of further shocks to supply expectations.

As a result, and in light of our own expectations in terms of economic data; we see little further downside to oil over the coming days.





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