Oil Markets Could Re-Balance Earlier Than Expected, New Research Shows

In a new report, A.B. Bernstein analyst Neil Beveridge discusses why China will be the main driver behind a quicker-than-expected re-balancing of the global oil market. According to Beveridge, the market is underestimating China's 2016 crude production cuts.

“We believe that at current prices the decline in non-OPEC, non-US production will be quicker than many expect, leading to a re-balancing of the market in 2H16,” he explained.

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Bernstein projects that China could cut production by 3 percent this year, reducing its output by up to 150 mbd. Consensus is currently expecting about a 0.7 percent production decline in China this year.

China is a key market to watch for oil investors because it is the fifth largest oil producer in the world.

Beveridge believes that the downward tick in oil prices to begin 2016 put even more pressure on non-OPEC producers to cut capex this year. With oil trading below marginal cash cost of production for many producers, he believes that economics will drive a re-balancing of the market by Q3 of 2016.

Bernstein has an Outperform rating on CNOOC Ltd (ADR) CEO and Market Perform ratings on PetroChina Company Limited (ADR) PTR and China Petroleum & Chemical Corp (ADR) SNP.

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