One of the main factors that dragged down oil prices is the glut in oil supply, in part, driven by higher OPEC output. Low oil prices has already started to bring down output of non-OPEC countries. But is this enough to turn things around for oil prices? In order to examine the trajectory of oil prices, we need to examine the dynamics of the supply, demand and storage levels. Based on the current outlook of the Energy Information Administration and the International Energy Agency excess supply over demand is expected to reveres only in the first quarter of 2016. But until stockpiles start to come down, oil prices could remain low for the medium term. Let’s tackle these issues.
The chart below presents the progress in the gap between supply and demand from 2013 to 2016. The outlook for the second half of the year and 2016 is based on the EIA’s supply outlook and IEA’s demand projections.
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