• 1 hour Midwestern Refiners Seek Canadian Oil To Expand Output
  • 6 hours UK On Track To Approve Construction of “Mini” Nuclear Reactors
  • 10 hours LNG Glut To Continue Into 2020s, IEA Says
  • 12 hours Oil Nears $52 With Record OPEC Deal Compliance
  • 16 hours Saudi Aramco CEO Affirms IPO On Track For H2 2018
  • 18 hours Canadia Ltd. Returns To Sudan For First Time Since Oil Price Crash
  • 19 hours Syrian Rebel Group Takes Over Oil Field From IS
  • 3 days PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 3 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 3 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 3 days Schlumberger Warns Of Moderating Investment In North America
  • 4 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 4 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 4 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 4 days New Video Game Targets Oil Infrastructure
  • 4 days Shell Restarts Bonny Light Exports
  • 4 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 4 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 4 days British Utility Companies Brace For Major Reforms
  • 4 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 5 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 5 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 5 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 5 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 5 days Rosneft Signs $400M Deal With Kurdistan
  • 5 days Kinder Morgan Warns About Trans Mountain Delays
  • 5 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 5 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 5 days Russia, Saudis Team Up To Boost Fracking Tech
  • 6 days Conflicting News Spurs Doubt On Aramco IPO
  • 6 days Exxon Starts Production At New Refinery In Texas
  • 6 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 7 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 7 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 7 days China To Take 5% Of Rosneft’s Output In New Deal
  • 7 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 7 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 7 days VW Fails To Secure Critical Commodity For EVs
  • 7 days Enbridge Pipeline Expansion Finally Approved
  • 7 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
Alt Text

Draw In Crude Inventories Lifts Oil Prices

Oil prices reversed course on…

Alt Text

Is The War On Coal Really Over?

Even if the EPA manages…

Alt Text

Can Trump Drive A Wedge Between Saudi-Russian Alliance?

Trump’s Iran deal decertification threatens…

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

Can OPEC Supply The Tighter Oil Market It Predicts?

Onshore Drilling Rig

OPEC expects oil demand to remain strong through 2017, but downgraded its assessment because of the Brexit result.

In its latest monthly Oil Market Report for July, OPEC sees oil demand rising this year and next, almost exclusively from non-OECD Asia. The OECD, which includes the U.S. and Europe, only posts a weak 0.10 million-barrel-per-day (mb/d) increase in demand next year under OPEC’s forecast. The other 1.1 mb/d comes from the non-OECD, mostly from Asia.

Growing demand will help the oil market continue to move towards a balance, OPEC argues, while at the same time oil supply also steadily falls. Non-OPEC supply contracts through next year with output falling by an additional 0.11 mb/d in 2017, which comes on top of the 0.9 mb/d decline from non-OPEC countries this year. U.S. shale has borne the brunt of this adjustment – U.S. oil production could be down by as much as 1.2 mb/d so far since peaking in April 2015. The latest data from the EIA shows oil production down 194,000 barrels per day for the week ending on July 1, a sharp drop off that puts overall U.S. output at just 8.4 mb/d. Falling production from the U.S. and elsewhere comes at a time when OPEC is keeping output steady, which has allowed the cartel to capture its largest market share since 1975.

That also means that demand for OPEC oil will continue to rise as it replaces lost output elsewhere. OPEC believes that the market will demand 33 mb/d from the group in 2017, up 1.1 mb/d from this year. That is also 142,000 barrels per day more than OPEC actually produced last month. If OPEC is unable to boost production – which could be a difficult task given some declines expected in places like Iraq and Venezuela, as well as supply disruptions in Nigeria and Libya – inventories will be drawn down. That will help support prices. Related: Shell’s New Sensors Could Reduce Exploration Costs Dramatically

Of course, global inventories matter just as much, and with falling production in the shale patch, storage levels should continue to come down in the U.S. as well. “Market conditions will help remove overall excess oil stocks in 2017,” OPEC wrote in its report.

While OPEC voiced some semblance of confidence in the trajectory of the oil market, it cautioned that the Brexit will dampen global growth, which will cut into oil demand. OPEC downgraded its global GDP growth estimate to 3 percent from 3.1 percent. Softer growth will occur in the UK and Europe especially. The Brexit also presents new variables that are difficult to predict, namely, how will central banks respond? There is a consensus that central bank policies will “remain accommodative,” particularly after the Brexit vote when the British pound began plunging. Looser monetary policy from Europe, the UK, or Japan will put pressure on the U.S. Fed to hold off on an interest rate hike. The Fed will take another look at the end of this month, but most analysts see an interest rate increase as unlikely. Related: Citibank: We’re Nearing A Bull Market For Oil

At the same time, the swift hand off in power in the UK to a new Prime Minister was welcomed by the markets. The pound rebounded and the dollar slid, helping to push up oil prices. WTI and Brent moved up by more than 4 percent during midday trading.

Then again, a Reuters report hinted that the sharp increase in oil prices could have been technical in nature, meaning speculators drove up prices after concluding that they fell too far. In recent weeks, hedge funds and other money managers had sold off long positions on crude, and shorts increased. Some see Tuesday’s rally as a correction. “The sharper move up caught everyone by surprise as there's probably short covering adding on to the technical buyback," an unnamed crude futures broker told Reuters.

The longer-term is a bit clearer. As OPEC lays out, the logic is pretty straightforward: demand continues to rise and supply continues to fall. 2017 is shaping up to be much tighter.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News