Oil: Risk of supply glut remains - Commerzbank

Research Team at Commerzbank suggests that given the recently announced production cut by OPEC they expect global oil demand/supply to balance in 2017 but risk of an oil supply glut remains.

Key Quotes

“OPEC and also Russia are producing oil at record levels at the moment, while US oil production rose also again recently, leading to higher US inventories. Moreover, Trump’s plans to increase fossil energy-related spending could increase the oil supply overhang and hence depress prices further.”

“Low oil prices in combination with Fed rate hikes could make refinancing for many US shale oil producers too difficult. With default rates rising, this could result in US credit underperforming and providing a drag on investment activity. Further, EM commodity producers would also suffer from lower revenues and would not only cut local spending but also demand less abroad. This may affect global asset prices via sales by Sovereign Wealth funds. Global growth concerns emerging as a consequence would then weigh strongly on equities, in particular energy and growth-sensitive stocks.”

“Additionally, sustained lowflation or even deflation fears may resurface and the long-awaited pick-up in inflation would not materialise. Yields would hardly rise in this environment, and the Fed would then be likely to postpone rate hikes.”