Hard times not yet over for oil

Oil prices remain under pressure as oil production growth continues to outpace a strong growth in oil demand. Inventories are at a record high which adds up as back up incase unexpected supply disturbances. If OPEC continues to stick to its market share strategy, upswing in oil prices will not been in the near future.

OPEC is flooding the market with cheap oil to try to squeeze out the more costly producers, but the process has been more painful and longer lasting than expected. Despite a year with punitively low prices, non-OPEC production has remained stubbornly high as the US shale production has been more resilient to lower oil prices and Russia is producing at the highest level since the breakup of the Soviet Union.

"We expect to see a sharper fall in US oil production next year, but the effect will be outbalanced by the return of large volumes of Iranian oil after the sanctions are removed. Oil prices have to stay low for an extended period for OPEC to reap its reward and win back market share", says Nordea Bank.

Low oil prices and ten years with increasing costs have forced oil producing companies to put its pet projects on hold. Global investments have been cut by 20% in 2015 and more cuts are expected in 2016. Oil demand has surged as lower oil prices have triggered above-trend growth especially in India and from motorists in US and China. This will abate next year.

The transport sector accounts for 55% of the world's oil consumption, and oil-based fuels have in effect been shielded from competition. OPEC's production control has contributed to a decade of rising oil prices. In addition, climate change and growing pollution in metropolises around the world have increased the pressure for new energy efficiency standards and emission cuts from transport. This has in turn triggered development of new sources and new battery technology - ultimately a dampener for oil demand.