Post the 4 Dec 2015 OPEC meeting, there was no change in the production quota of its members. As such, we maintain our supply and demand assumptions, as well as our crude oil price forecasts. However, as we believe that the IMF’s global economic growth estimate of 3.6% for 2016 may be on the bullish side, we caution that there could be more downside risk for the oil markets, as demand may fall short of expectations while supply may surprise on the upside.

• What happened? The Organization of Petroleum Exporting Countries’ (OPEC) meeting on 4 Dec has concluded with – as we had expected – no production cuts imposed on its members. Thus, there will be no production ceiling for its members, going forward. Iran indicated that it will not consider any production cuts until it can restore output. OPEC secretary general Abdullah al-Badri said that OPEC could not agree on any figures, as it could not predict how much oil Iran would add to the market in 2016. The rationale behind this decision is that as other major producers, ie the US and Russia, do not have a production ceiling, then why should OPEC have a ceiling. (Source: Reuters/Bloomberg)
• The impact. The outcome should not come as a surprise, as OPEC’s 30 million barrels per day (mbpd) ceiling set in 2011 had no real impact on its members’ outputs, which exceeded the limit for 18 consecutive months since it was set. The impact of the outcome of the meeting is that oversupply may continue through 2016. We believe oil prices may be under pressure by the entry of extra exports from Iran in an oversupplied market. Iran currently has 38m barrels (bbl) of crude oil and condensate in floating storage (ready for immediate sale) and there is a potential supply of 0.5-1mbpd coming online over the next 12 months.
• IAEA board to finalise case ruling on 15 Dec. The International Atomic Energy Agency (IAEA) concluded its final assessment report of the Iran nuclear inspections on 2 Dec. The report states that a range of activities relevant to the development of a nuclear explosive were conducted in Iran prior to the end of 2003, while coordinated efforts and some activities took place up to 2009. However, such activities did not advance beyond feasibility and scientific studies, on top of the acquisition of certain relevant technical competences and capabilities. The final ruling will be decided on 15 Dec by IAEA’s 35-nation board.