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What's going on?
According to an influential report released on Wednesday, demand for oil is increasing faster than expected which should be good for the oil price!
What does this mean?
The oil price is now at about half the level it was in mid-2014, when it began a stark selloff amidst concerns that the world was oversupplied with oil. But now the oversupply appears to be lessening somewhat. For one, demand from the US and Europe has been higher than expected. Meanwhile, OPEC members (a group of countries producing 40% of the worlds oil) and other oil-producing countries have agreed to limit their production, helping to dampen global supply.
Why should I care?
For markets: Less oversupply and growing demand helps lift the oil price up.
All else being equal, less supply and more demand are both good news for the oil price. On Wednesday, the oil price jumped 2%! The jump was perhaps due to this influential report, but a story in the Wall Street Journal may have also had an impact: it said that Saudi Arabia is reportedly pushing to have OPEC members reduce the amount of oil they export. Currently, even if members reduce production, they can keep selling oil from their reserve stockpiles. But if export controls were successfully enforced, the supply of oil in global markets would be more effectively limited giving the oil price a boost.
The bigger picture: Double whammy for the oil price.
Outside of OPEC, a key driver of the oversupply was the increase in shale oil production (a more unconventional type of oil) in the US. However, the growth of US shale oil production has recently been showing signs of slowing down another factor which should be positive for the oil price, especially if demand for oil is increasing.
Originally posted as part of the Finimize daily email.
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