Supply has been the largest driver of oil price developments since the middle of last year. Opec’s tactic to arrest a surge in non-Opec production is to keep its members’ output high enough to depress prices. This has left the market adrift in an unfamiliar ocean of marginal cost-based supply calculations. Now, the demand response is puzzling the industry. Old truisms about sources of demand growth are being superseded. The global economy is responding to lower oil prices and new demand sinks are opening up for the supply overhang.
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