Oil prices are getting nearer from the 2008-09 crisis level of $33.98 per barrel as Iran is expected to export more oil as sanctions are lifted, beginning next year. OPEC members have not agreed to put a cap on their respective outputs.
As a consequence, speculators are increasing their short positions and test when action would be taken by producers as oil prices are still seeking support. Oil prices have indeed dropped by 33% year-to-date.
Saudi Arabia, the largest OPEC producer cannot reduce production as the desert kingdom wants to defend market share against some OPEC member like Iran and non-OPEC members too.
Indeed, Saudi Arabia represents 32% of monthly OPEC estimated production, whereas Iran is at 8.7% with the sanctions in place.
According to Bloomberg.com, China's apparent oil demand fell 1.1% to 10.19 millions barrels per day, in November. The main driver of oil consumption growth in the past 5 years, is not supporting anymore and this is an additional downtrend supporting justification for speculators to increase their short positions.
The recent climate deal would also lead to a lower of demand expectations for oil and hence the oil prices back to levels of $100 per barrel would look as a far history . The deal sends a economic signal that fossil fuels will be impacted with financial and legal premiums to remain part of the energy mix, and clean energy will enjoy subsidies. This agreement means that a fundamental shift of investments towards renewables, energy efficiency (both oil demand bearish).
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Alex Larose covers Large and Mid Cap stocks. He joined Markets Wired in 2013 and assumed lead coverage of the several sectors in early 2014.