Oil Traders Take Profits As OPEC Lowers Production Projections

On Monday, OPEC joined the International Energy Agency (IEA) in predicting that non-OPEC global oil supply will begin to fall in 2016. In addition, OPEC has upped its oil demand outlook for 2016.

The Numbers

In its monthly report, OPEC projected that the world will require 30.82 million barrels of OPEC oil per day in 2016, up more than half a million barrels per day from its previous forecast.

Perhaps more surprising is that OPEC now calls for non-OPEC global supply in 2016 to decline by 130,000 bpd. The organization has previously been calling for non-OPEC supply growth of 160,000 bpd.

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Balanced Market

The reduced supply projections are good news for oil bulls, as a reduction in global supply is the first step in eliminating the massive supply glut that has led to the recent collapse in prices.

OPEC is hopeful that its new projections are a sign that the oil market is now moving in the right direction. “This should reduce the excess supply in the market and lead to higher demand for OPEC crude, resulting in more balanced oil market fundamentals,” the OPEC report read.

Taking Profits

WTI U.S. crude prices are down about 2.6 percent in early Monday trading to $48.33/bbl as investors seem to be taking profits following a large run-up in prices over the last month.

The news of falling production is good for the longer-term fundamentals of the oil market, but shares of the United States Oil Fund LP (ETF) USO surged more than 6.0 percent last week, and may have hit short-term technical resistance.

Disclosure: The author holds no position in the stocks mentioned.