• 4 minutes Why Trump Is Right to Re-Open the Economy
  • 7 minutes Did Trump start the oil price war?
  • 11 minutes Covid-19 logarithmic growth
  • 15 minutes Charts of COVID-19 Fatality Rate by Age and Sex
  • 18 minutes China Takes Axe To Alternative Energy Funding, Slashing Subsidies For Solar And Wind
  • 2 hours Russia's Rosneft Oil Company announces termination of its activity in Venezuela
  • 4 hours America’s Corona Tsar, Andrew Fauci, Concedes Covid-19 May Be Just a Bad Flu With a Fatality Rate of 0.1%
  • 9 hours Saudi Arabia Can't Endure $30 Oil For Long
  • 2 hours TRUMP pushing Hydroxychloroquine + Zpak therapy forward despite FDA conservative approach. As he reasons, "What have we got to lose ?"
  • 6 hours KSA taking Missiles from ?
  • 8 hours Where's the storage?
  • 8 hours Western Canadian Select selling for $6.48 bbl. Enbridge charges between $7 to $9 bbl to ship to the GOM refineries.
  • 8 hours Hillary Clinton tweeted a sick Covid joke just to attack Trump
  • 10 hours China extracts record amount of natural gas from Gas Hydrates in South China Sea
  • 12 hours Wait till America opens their Q1 401k Investment Statements and see they have lost 35% of their retirement savings. They can blame the Authoritarian Chinese Communist Party..
  • 13 hours There are 4 major mfg of hydroxychloroquine in the world. China, Germany, India and Israel. Germany and India are hoarding production and blocked exports to the United States. China not shipping any , don't know their policy.
  • 15 hours Oxford Epidemiologist: Here’s Why That Covid-19 Doomsday Model Is Likely Way Off
Alt Text

Russia Makes Move On Antarctica’s 513 Billion Barrels Of Oil

Rosgeologia’s seismic surveys and other…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

More Info

Premium Content

Is History Repeating Itself In Oil Markets?

Back in 2014, U.S. shale production was growing so fast that it ended up crashing the market. Now, history could be repeating itself.

That was the warning from the International Energy Agency, which said in its latest Oil Market Report that a “second wave” of shale supply threatens another downturn.

Total global oil supply is expected to grow faster than demand this year, which could lead to another downturn. It’s a conclusion that the IEA tried to emphasize in previous reports, but the message finally seems to be sinking in.

The extraordinary run up in benchmark prices in December and January came to a startling end two weeks ago. Part of the reason was because of the broader market turmoil in equities, and part of it was because hedge funds and other money managers had overbought oil futures, exposing the market to a price correction.

But as the IEA notes, the real worry is rising oil supply, which means that “the underlying oil market fundamentals in the early part of 2018 look less supportive for prices.”

It isn’t all bad news for benchmark prices. The IEA noted that due to the OPEC production cuts and strong demand, inventories fell at a remarkable rate last year. The oil inventory surplus currently stands at about 52 million barrels above the five-year average, down sharply from 264 million barrels a year ago. Importantly, while crude oil inventories are closing in on the five-year average, total stocks of gasoline and other refined products have already fallen well below that threshold. “With the surplus having shrunk so dramatically, the success of the output agreement might be close to hand,” the IEA wrote.

(Click to enlarge) 

But even as the elusive “balance” in the oil market is within reach, the IEA says things might quickly reverse.

The reason why the oil market might suffer from a renewed glut largely comes down to soaring U.S. shale production. In the three-month period ending in November, the U.S. added “a colossal 846 kb/d,” the IEA noted, with even steeper gains expected this year. The bearish forecast comes a week after the U.S. EIA said much of the same thing: shale output is rising so quickly that the U.S. could reach 11 million barrels per day (mb/d) this year instead of next year. By the end of 2018, the U.S. could surpass Russia and Saudi Arabia in terms of total production.

The IEA says that the stars are aligning for U.S. shale, with “rising prices leading, after a few months, to more drilling, more completions, more production, and more hedging.”

Some of these figures and forecasts have been floating around for a little while now, but the IEA put the situation in stark terms. The agency says that the current growth trajectory in shale production “is reminiscent of the first wave of US shale growth that, riding the tide of high oil prices in the early years of this decade, made big gains in terms of market share and eventually in 2014 forced a historic change of policy by leading producers.” Supply growth from the U.S. alone could equal total global demand growth.

In other words, shale growth could crash oil prices again, and the only thing preventing a collapse is OPEC sticking with its production limits. Back in 2014, the cartel decided to abandon market management, which precipitated the meltdown. “This is a sobering thought for other
producers currently sitting on shut-in production capacity and facing a renewed challenge to their market share,” the IEA said.

Another price meltdown isn’t an inevitability. Demand looks strong and could expand by more than everyone assumes. Meanwhile, Venezuela’s rapid deterioration could also take more oil supply off of the market. If OPEC maintains high levels of compliance, the oil market could weather the new wave of shale supply, and return to a more bullish footing later this year as demand soaks up the excess.

But, if demand disappoints, or if more supply comes from unexpected places – Libya’s output apparently hit a five-year high in January – then things look pretty pessimistic. At worst, surging shale supply could bring a rerun of the downturn from several years ago. Time will tell.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage






Leave a comment
  • Trevor Aspinall on February 14 2018 said:
    Lead to another downturn? We're still in the same downturn lol.

Leave a comment




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