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An Oil Supply Glut Is Looming

1. Futures depict emerging oil supply glut

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- Oil futures slipped into contango in the fourth quarter, a sign of an emerging glut of supply. Contango – when futures trade at a discount relative to longer-dated contracts – often accompanies a short-term supply surplus.
- But the OPEC+ cuts helped boost near-term pricing, and Brent has been in a state of backwardation since February.
- Front-month contracts recently traded at a higher than $5-per-barrel premium to contracts 13 months out, the highest premium in six months.
- The U.S. announcement not to renew Iran sanctions waivers resulted in a brief spike in near-term pricing. But after last years’ experience, OPEC+ will likely be cautious before making any rash decisions.
- “Instead, we expect OPEC to keep the market tight and allow prices to drift higher, regardless of the short-term volatility caused by Trump’s oil supply comments,” Standard Chartered wrote in a note this week.

2. More than 1 million kilometers of wells to be drilled

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- The global oil industry is expected to drill more than 1 million kilometers of new oil and gas wells over the next five years, according to Rystad Energy.
- The depth of those wells is equivalent to 2.5 times the distance to the moon, or 25 times around the equator.
- In 2019 alone, around 65,000 new oil and gas wells will be drilled.



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