• 3 minutes China has *Already* Lost the Trade War. Meantime, the U.S. Might Sanction China’s Largest Oil Company
  • 7 minutes Saudi and UAE pressure to get US support for Oil quotas is reportedly on..
  • 11 minutes China devalues currency to lower prices to address new tariffs. But doesn't help. Here is why. . . .
  • 15 minutes What is your current outlook as a day trader for WTI
  • 3 hours Long Range Attack On Saudi Oil Field Ends War On Yemen
  • 1 hour Will Uncle Sam Step Up and Cut Production
  • 7 hours In The Bright Of New Administration Rules: Immigrants as Economic Contributors
  • 7 mins Maybe 8 to 10 "good" years left in oil industry * UAE model for Economic Deversification * Others spent oil billions on terrorism, wars, lopping off heads * Too late now
  • 16 hours Gretta Thunbergs zero carbon voyage carbon foot print of carbon fibre manufacture
  • 16 hours Domino Effect: Rashida Tlaib Rejects Israel's Offer For 'Humanitarian' Visit To West Bank
  • 16 hours Continental Resource's Hamm wants shale to cut production. . . He can't compete with peers.
  • 11 hours CLIMATE PANIC! ELEVENTY!!! "250,000 people die a year due to the climate crisis"
  • 22 hours NATGAS, LNG, Technology, benefits etc , cleaner global energy fuel
  • 1 day Significant: Boeing Delays Delivery Of Ultra-Long-Range Version Of 777X
  • 1 day Strait Of Hormuz As a Breakpoint: Germany Not Taking Part In U.S. Naval Mission
  • 1 day Why Oil is Falling (including conspiracy theories and other fun stuff)
  • 20 hours Trump vs. Xi Trade Battle, Running Commentary from Conservative Tree House
Alt Text

Hedge Funds Turn Their Back On Oil

Oil markets took a turn…

Alt Text

Oil Erases Gains On Crude Inventory Build

Crude oil prices fell further…

Alt Text

Will We See An Oil Supply Glut In 2020?

Oil prices seem to be…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Premium Content

Can OPEC+ Halt The Oil Price Slide?

Oil prices continue to plumb new depths, but some analysts think the selloff has gone too far.

Brent prices fell to $62 per barrel by mid-week, hitting nearly a one-year low. The bearish narrative has taken hold in a big way, with rising U.S. shale production, record output from Saudi Arabia, rising inventories and faltering demand growth all combining to drag down crude prices. “The bears still have the oil market firmly in their grip,” Commerzbank said in a note on Thursday. “No end to the downswing is in sight for the foreseeable future.”

But are prices dropping too far, too fast? Some analyst think so. “[T]he oil market sell-off has overshot current and forward fundamentals,” Goldman Sachs wrote in a note on November 20.

Goldman Sachs believes that the most recent selloff, which saw Brent drop below $60, came with “no new fundamental data,” suggesting that the drop reflects a confluence of factors including expectations of a glut in 2019, speculative trading, low trading activity ahead of the Thanksgiving holiday as well as the broader selloff in global equities.

Still, the fundamentals have been trending in a bearish direction. And even though OPEC+ has sent signals that a production cut is on the table, other bits of news have been negative. Libya expects to be exempted from the production cut, and its output continues to rise steadily. Venezuela’s output fell by less than expected in October. Iraq and Kurdistan just agreed to allow for some oil – up to 100,000 bpd initially – to resume flowing through a Kurdish pipeline. If the tentative agreement holds and the two sides build on it, another 200,000 bpd could follow.

It will take a “fundamental catalyst for prices to stabilize,” Goldman argues. “While we expect prices to eventually recover, we continue to expect high price volatility until evidence that the oil market fundamentals are improving, requiring a decline in OPEC production and signs that demand growth is resilient.” Related: Plunging Oil Prices Weigh On Saudi Bonds

The Brent futures curve has flattened significantly, and Goldman argues that for spot prices to rise, the futures curve will have to move back into a stronger backwardation – a situation in which near-term prices trade at a premium to longer-dated oil futures. The good news for oil prices it that the “current data does not justify” the recent and sudden flattening of the curve, Goldman analysts argue. That is because “inventories are not elevated, demand growth is likely to beat low expectations, Iran exports will decline further and ultimately core OPEC will reduce output in our view.”

But prices are also down because of expectations of a growing supply glut in 2019. U.S. shale continues to surprise the market, beating even optimistic forecasts of production growth. Supply disruptions continue to decline, most notably in Libya. Meanwhile the expected output cut form OPEC+ will also allow for a rebuilding of spare capacity, reducing supply risks going forward. “This effectively reverses the perceived need since May for high-cost marginal barrels to compensate for Permian bottlenecks and Iran export losses,” Goldman Sachs wrote. Related: Does The U.S. Really Need Saudi Oil?

The investment bank said that its expectation that prices will recover could be wrong due to two factors. First, the global economy could enter a downturn and demand collapses. Or, OPEC+ decides not to cut at all at the upcoming meeting, which leads to a significant supply glut heading into 2019.

Looking out over the next year, OPEC+’s problems get even trickier. They could decide to flood the market, which would likely crash prices, but that would crush their own budgets. Meanwhile, U.S. shale is poised to add a flood of new supply next year. As Bloomberg notes, the shale industry has already vastly exceeded expectations in 2018, and shale companies have not slowed down. They are drilling new wells now, but only completing some of them. E&Ps are keeping some wells uncompleted, awaiting new pipelines in 2019. When those projects come online, another wave of fresh supply could be unleashed. “We’re going to see a re-acceleration of well completions in the Permian in the second half of 2019,’’ Corey Prologo, head of oil trading in Houston at commodity merchant Trafigura Group Ltd., told Bloomberg. “The pipelines are going to fill up very quickly.’’

OPEC+ could decide to cut output in December to stop the slide in oil prices. But their task gets no easier as we head into 2019.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment
  • citymoments on November 25 2018 said:
    With all due respects to the author, I would like to ask him a simple question? Why shale producers are drilling wells? To make USA the No 1 oil producer in the world or make a return for their shareholders ? Most shale oil producers'share prices have dropped more than 30% last 12 months, most of them have no free cash flow, this is the most perverse form of capitalism : keep pumping the oil by burning OPM ( other people's money).
  • Neil Dusseault on November 26 2018 said:
    As per the title of this article, yes of course they can and most likely will.

    Very few things are for certain with any trading, but especially concerning futures, only oil can be manipulated quite so easily. I've often asked why do we even have a market for crude when producers can jawbone and outright fix prices to their liking when they see fit.

    Folks, when OPEC+ meets in December, they will cut production one way or another. OilPrice and other sites will have articles in advance mentioning what the market may due based on what OPEC+ actually does. But at this rate oil is poised to go back to the mid-$60s/bbl on WTI following the meeting, as it will be around $60/bbl (at least) by that time, if not before.

    How do I know? Algos. Approx. 83% of all trades are performed by algorithmic trading on behalf of hedge fund managers. That's another thing--the price of oil is mostly determined by a small handful of over-privileged folks who are the ones actually pulling the trigger. Right now as I type, January '19 WTI is trading at $51.20 or more than a whole dollar above session lows and it is only the middle of the night on Sunday (officially Monday morning). It's so predictable because of algos: For right now, the market "wants" Brent to be above $60/bbl, which puts WTI up about $1/bbl and RBOB up by at least 3 cents/gallon so far.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play