Rather optimistic about oil in the medium to long term!

The Organization of the Petroleum Exporting Countries decided not to lower production at its meet last Friday. Keeping production at near-record levels in an oversupplied market has spooked investors grappling with reduced demand from China, the world's biggest energy consumer. OPEC's inability to agree on a production ceiling meant that supply will continue to depress oil prices. As an immediate reaction Global oil benchmark Brent crude futures dropped 5.4 percent to $40.66 per barrel on Monday. U.S. crude futures fell to as low as $37.50 per barrel, also hitting a near-seven-year low.

A disagreement between Saudi Arabia and Iran saw the OPEC statement have no mention regarding a target production level/output quota, which previously stood at 30 million barrels per day. It appeared as though the organization was effectively abandoning its long-term strategy of limiting production and acting as a cartel, leading to more downward pressures on oil prices. The rout in oil prices is hardly surprising, traders feel oil price is unlikely to find any support from OPEC in the coming months. 

"Clearly the actors and their goals and time horizons are too different. In our opinion, however, rising oil prices next year will not depend on OPEC reaching immediate agreement or on a return to price control, as we expect prices to increase primarily on the back of continued robust demand growth and a decline in non-OPEC oil production", says Commerzbank in a research note.

For OPEC, it is not about maintaining their profit for the time being, but maintaining the market share and even more significant is keeping the united front. As OPEC continues to pump near record oil to defend market share, the glut is compounding, with hundreds of thousands of barrels produced every day in excess of demand. 

U.S. crude oil prices remain near seven-year lows, also weighing heavily on all the resource-linked currencies. The extreme levels of pessimism currently shown by financial investors towards crude oil actually make some analysts feel rather optimistic in the medium to long term, as most of the risks to the oil price thus appear to have been priced in. 

"As we see higher oil output from (non-OPEC) Russia, Iraq and, most importantly, Saudi Arabia, we are likely to see a continued pressure from the resultant low oil prices. This will affect U.S. shale producers as well and therefore an increase in new investment in the sector is unlikely. This will support prices in the medium term,"  said Sanjiv Shah, Chief Investment Officer of Sun Global Investments.

Crude prices steadied not far from seven-year lows on Tuesday as China reported strong commodity imports despite economic weakness. Benchmark Brent and WTI futures are close to levels last seen during the credit crunch of 2008/09. Brent futures were up 54 cents at $41.27 a barrel by 1050 GMT. U.S. crude was trading at $37.94 a barrel, up 29 cents from its last settlement, though still close to the seven-year lows of the previous session.