• 3 minutes Could Venezuela become a net oil importer?
  • 7 minutes Reuters: OPEC Ministers Agree In Principle On 1 Million Barrels Per Day Nominal Output Increase
  • 12 minutes Battle for Oil Port: East Libya Forces In Full Control At Ras Lanuf
  • 8 hours Oil prices going Up? NO!
  • 1 day Could Venezuela become a net oil importer?
  • 1 hour Renewables to generate 50% of worldwide electricity by 2050 (BNEF report)
  • 37 mins Reuters: OPEC Ministers Agree In Principle On 1 Million Barrels Per Day Nominal Output Increase
  • 1 day Gazprom Exports to EU Hit Record
  • 9 hours Could oil demand collapse rapidly? Yup, sure could.
  • 6 hours Oil prices going down
  • 2 days Why is permian oil "locked in" when refineries abound?
  • 1 day Oil Buyers Club
  • 6 hours Saudi Arabia turns to solar
  • 7 hours Tesla Closing a Dozen Solar Facilities in Nine States
  • 1 day EVs Could Help Coal Demand
  • 8 hours Battle for Oil Port: East Libya Forces In Full Control At Ras Lanuf
  • 24 hours Russia's Energy Minister says Oil Prices Balanced at $75, so Wants to Increase OPEC + Russia Oil by 1.5 mbpd
  • 57 mins Are Electric Vehicles Really Better For The Environment?
  • 1 day EU Leaders Set To Prolong Russia Sanctions Again
Alt Text

Oil Demand Growth Could Start To Soften Soon

Non-OECD markets are one of…

Alt Text

The Last Oil Frontier In The Gulf Of Mexico

The potential of the U.S.…

Alt Text

NAFTA Rift Could Be A Boon For Canadian Oil

President Trump’s plan to renegotiate…

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

Trending Discussions

IEA: Oil Prices Could Rise Further As Shale Can’t Fill The Gap

refinery

U.S. shale will continue its breakneck growth rate into 2019, despite bottlenecks, but the oil market still faces serious supply risks from the potential losses from Venezuela and Iran, the International Energy Agency (IEA) said in a new report.

The IEA said that the run up in oil prices in the last few months dampened oil demand growth, although the agency left its forecast for oil demand growth unchanged at 1.4 million barrels per day, after downgrading that estimate last month. Subsidies and price regulation in a growing number of countries, intended to blunt the impact of rising fuel prices, could keep demand growth on track, despite oil prices trading significantly higher than, say, a year ago.

Looking ahead to 2019, the IEA thinks that oil demand growth will expand by yet another 1.4 mb/d, this time with the help of the petrochemical sector. A number of projects are coming online earlier than expected, adding more consumption to the mix. The demand estimate is a rather strong one, given substantial expansion in demand over the past few years.

There are risks to that forecast, including “a weakening of economic confidence, trade protectionism and a potential further strengthening of the US dollar,” the IEA said. Those factors should not be overlooked. Indeed, strong demand does not stand independent of the price variable, for instance. How this plays out is unclear, but with the oil market now much tighter than at any point in the last few years, strong demand going forward will start to drive up prices much more than it did in the past.

The supply side of the equation is much more interesting. On the positive side of the ledger, the IEA sees non-OPEC supply growing by 2 mb/d in 2018, followed by another jump of 1.7 mb/d in 2019. The U.S. makes up three quarters of both of those figures.

Skyrocketing production from U.S. shale “has not been without stress,” the IEA notes, citing the greater-than $10-per-barrel discount for WTI relative to Brent, and an even greater discount for oil located in Midland, Texas, where all of that oil is coming from. The IEA does not seem overly concerned about the pipeline bottlenecks in the Permian, noting that much of the issue will be resolved with new capacity by the end of next year. Related: Oil Prices Rebound On Crude, Gasoline Inventory Draws

“We think that in Texas by end-2019 there will be a net 575 kb/d of additional pipeline capacity beyond our earlier number, albeit with most of it coming on line in the second half of the year,” the IEA wrote. “In the meantime, capacity will likely remain tight but production will still be able to grow strongly, by 1.3 mb/d this year and 0.9 mb/d in 2019.”

However, while soaring U.S. shale output would seem to keep the oil market well-supplied, catastrophic declines in Venezuela and potentially in Iran could keep things rather tight. The IEA said it is conceivable that the two beleaguered OPEC members, both of which are staring down U.S. sanctions, could lose 1.5 mb/d of supply combined by the end of 2019.

OPEC will likely respond to these potential losses, and the IEA guesses that the cartel will add somewhere around 1.1 mb/d “in fairly short order.” U.S. President Donald Trump added further pressure on the cartel in a tweet on Wednesday. The message to OPEC ahead of its meeting – and, in particular, to Trump’s ally, Saudi Arabia – is a not a very subtle one.

Oil prices are too high, OPEC is at it again. Not good!

Still, just because OPEC is on the verge of adding supply back into the market, that does not mean that everyone can rest easy. “[E]ven if the Iran/Venezuela supply gap is plugged, the market will be finely balanced next year, and vulnerable to prices rising higher in the event of further disruption,” the IEA said. “It is possible that the very small number of countries with spare capacity beyond what can be activated quickly will have to go the extra mile.”

Indeed, spare capacity could be drawn down to the lowest level in decades if OPEC and Russia decide to increase output. While raising production will help meet demand, it also eats away at the surplus buffer that Saudi Arabia, in particular, has available on the sidelines. Low spare capacity creates a lot of price risk in the event of additional outages. And given the instability in places like Libya and Nigeria, plus question marks about how low output in Venezuela and Iran could go, it is safe to assume that more surprises are coming down the pike.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage

Trending Discussions


Leave a comment
  • Mamdouh G Salameh on June 14 2018 said:
    The IEA is telling us the obvious masquerading as the product of its research. Firstly, oil prices will continue to rise if the current positive fundamentals of the global oil market continue this year and next year as projected. Secondly, it has always been known that US shale oil can’t bridge the gap between global demand and supply despite the hype about shale oil potential by both the EIA and IEA.

    If US shale was able to fill the gap, the United States will not be continuing to import up to 8 million barrels a day of oil (mbd) and President Trump would not be asking Saudi Arabia to see to it that OPEC increases oil production by 1 mbd to replace any shortfall in Iran’s oil exports as a result of the forthcoming US sanctions.

    While OPEC says that non-OPEC supply could add 1.65 mbd to the global oil market in 2019, global demand will be growing by an additional 1.6 mbd thus keeping the oil market tightly balanced and contributing to the continuation of high oil prices.

    And contrary to projections by the IEA and many other analysts, Iran will not lose a single barrel of oil exports thanks to the European Union continuing to buy Iranian oil and also the petro-yuan.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment




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