OPEC cuts production, worries about demand

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Two main factors weigh on oil markets. The first, as PetroMatrix note in their latest weekly report, is that speculative players in virtually all commodity markets are being forced to deleverage their positions, and so “the bottom will be dependent on the end of the firesale”. The other factor is the continuing fall in demand. OPEC’s own expectation, following its 1.5mbd production cut, is that global recession means the current “fall in demand will deepen, despite the approach of winter in the northern hemisphere”.

The risk is that all this uncertainty over future demand levels and prices starts to reduce future supply. A new draft study from the International Energy Agency suggests the world needs to replace 9.1% of current production every year, as existing fields reach the end of their life. As the Saudi cabinet warned on Monday, “continuation of investment” is therefore vital for the “safety and growth of the world economy”.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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