London Telegraph: “One piece of the jigsaw puzzle is missing to complete the deflation landscape across the West: a slide in oil prices. This is becoming more likely each month. Turmoil across the Middle East and parts of Africa has choked supply over the past two years, keeping Brent crude near $110 a barrel despite a broader commodity slump. Cotton and corn prices have halved, as has the UBS index of industrial metals. Such anomalies rarely last. We estimate that crude oil is now the mostly richly priced commodity in the world, says Deutsche Bank in a fresh report. Michael Lewis, the banks commodity strategist, said markets face an new oil supply glut as three forces combine. US shale will add 1m barrels a day (b/d) to global supply for the third year running; Libya will crank up shipments after a near collapse in 2013; and Iran will come out of hibernation. This will push OPEC spare capacity to levels last seen in the depths of the financial crisis in 2009, he said. America is on track to overtake Saudi Arabia as the top global producer of oil by 2016. It will account for more than half of non-OPEC world supply this year. The US Energy Department says US oil imports will drop to 5.5m b/d by next year, half the level a decade ago. This turns the worlds 89m b/d market upside-down. Deutsche Bank said Saudi Arabia may have to slash its output by a quarter to 7.5m b/d this year to stop the bottom falling out of the market. The Saudis no longer have such money to spare. They are propping up an elephantine welfare nexus to keep a lid on explosive tensions in the Eastern Province, home to Saudi oil and its aggrieved Shia minority. A cut of this size would push the budget into deep deficit. This comes as Iran makes its peace with the West. Its 30-year vendetta with US - Irans natural ally in many ways - no longer makes sense. Bank of America says a simultaneous return of Iran and Libya could add up to 3m b/d. Just a third of this positive supply shock could shave $20 off the world oil price.”
Posted on: Sun, 01 Jun 2014 21:37:40 +0000
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