• 5 mins British Utility Companies Brace For Major Reforms
  • 4 hours Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 6 hours Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 7 hours Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 8 hours OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 9 hours London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 10 hours Rosneft Signs $400M Deal With Kurdistan
  • 13 hours Kinder Morgan Warns About Trans Mountain Delays
  • 19 hours India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 1 day Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 1 day Russia, Saudis Team Up To Boost Fracking Tech
  • 1 day Conflicting News Spurs Doubt On Aramco IPO
  • 1 day Exxon Starts Production At New Refinery In Texas
  • 2 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 2 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 2 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 2 days China To Take 5% Of Rosneft’s Output In New Deal
  • 2 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 2 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 2 days VW Fails To Secure Critical Commodity For EVs
  • 2 days Enbridge Pipeline Expansion Finally Approved
  • 2 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 3 days OPEC Oil Deal Compliance Falls To 86%
  • 3 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 3 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 3 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 3 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 3 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 4 days Aramco Says No Plans To Shelve IPO
  • 6 days Trump Passes Iran Nuclear Deal Back to Congress
  • 6 days Texas Shutters More Coal-Fired Plants
  • 6 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 6 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 7 days Chevron Quits Australian Deepwater Oil Exploration
  • 7 days Europe Braces For End Of Iran Nuclear Deal
  • 7 days Renewable Energy Startup Powering Native American Protest Camp
  • 7 days Husky Energy Set To Restart Pipeline
  • 7 days Russia, Morocco Sign String Of Energy And Military Deals
  • 7 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
  • 7 days China Set To Continue Crude Oil Buying Spree, IEA Says
Alt Text

Has The Bear Market In Oil Finally Ended?

Recent data provides reasons to…

Alt Text

Is The War On Coal Really Over?

Even if the EPA manages…

Alt Text

Is The Aramco IPO On The Brink Of Collapse?

Conflicting news suggests that Saudi…

OPEC Still Holds All The Cards In Oil Price Game

OPEC Still Holds All The Cards In Oil Price Game

Traders were busy throwing in the towel on oil futures this week just as the first solid data and hope appeared that oil prices may be starting on the long road to recovery.

As oil prices approached $52 per barrel on Tuesday, July 7, the EIA released the July Short-term Energy Outlook (STEO) that showed an increase in global demand.

Figure 1. New York Mercantile Exchange crude oil futures, Continuous Contract #1 (CL1) (Front Month).

Source: Quandl

(Click image to enlarge)

Global liquids demand increased 1.26 mmbpd (million barrels per day) compared to May (Figure 2).

Figure 2. World Liquids Supply and Demand, July 2013-June, 2015.

Source: EIA and Labyrinth Consulting Services, Inc.
(Click image to enlarge)

This is the first data to support a potential recovery in oil prices. For months, great attention was focused on soft measures like rig count, crude oil inventories and vehicle miles traveled, all in the United States. These are potential indicators of future demand but hardly the kind of data that should have moved international oil prices from $47 in January to $64 in May.

The relative production surplus (production minus consumption) moved down to 1.9 mmbpd (Figure 3). Related: Cyber Threat Has Oil And Gas Majors On Edge

Figure 3. World liquids production surplus or deficit (total production minus consumption)

and Brent crude oil price in 2015 dollars. Source: EIA and Labyrinth Consulting Services, Inc.
(Click image to enlarge)

That is certainly good news but an over-supply of almost 2 mmbpd is hardly cause for celebration. The new demand data from EIA brings over-production of liquids back into the October 2014 to January 2015 range that resulted in Brent oil prices falling from $87 to $48 per barrel. Related: The Story Behind Inflated World Oil Reserves

Oil prices dropped sharply this week as news of the Greek financial crisis and the free fall of Chinese stock exchanges suggested weaker demand for oil, as the global economy falters. The EIA demand data does nothing to change this troubling economic outlook but it does confirm the seemingly obvious notion that low oil prices result in greater consumption.

In recent posts, I have emphasized that falling global demand for oil is key to OPEC’s strategy to keep prices low for some time. The July STEO underscores this problem for two key markets – the Asia-Pacific region – 29% of world consumption–that includes China, Japan and India, and the United States – 21% of world consumption. Growth in Asia has slowed from 7% annually in 2012 to only 2% today (Figure 4).

Figure 4. Asia-Pacific liquids consumption and year-over-year change.

Source: EIA and Labyrinth Consulting Services, Inc.
(Click image to enlarge)

While somewhat less alarming than Asia, U.S. growth has slowed from 6.5% annually in 2013 to about 4% today (Figure 5).

Figure 5. U.S. liquids consumption and year-over-year change.

Source: EIA and Labyrinth Consulting Services, Inc.
(Click image to enlarge) Related: EIA Data Still Diverging From Reality

U.S. crude oil production declined a mere 40,000 barrels per day in June (Figure 6). U.S. production fell 120,000 bpd in January. That was a good sign that the global over-supply would be alleviated sooner than later so prices could recover.

Figure 6. U.S. crude oil production. Source: EIA and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

Then, an increase in prices in February and exceptional capital flow to U.S. tight oil companies resulted in increased U.S. production in February, March and April. Company executives boast about the resilience of U.S. tight oil production as if over-production and low prices are something they are proud of and that their shareholders value.

ConocoPhillips CEO Ryan Lance made macho proclamations at the OPEC meeting in June that tight oil “is here to stay,” single-handedly undermining the remote possibility that a production cut might result from the cartel’s meeting.

U.S. E&P companies should get realistic about the situation they are in. Price will win this game. OPEC holds those cards for now.

By Art Berman for 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