• 2 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 5 minutes Middle East on brink: Oil tankers attacked off Oman
  • 8 minutes CNN:America's oil boom will break more records this year. OPEC is stuck in retreat
  • 7 hours Here We Go: New York Lawmakers Pass Aggressive Law To Fight Climate Change
  • 2 hours The Inconvenient Truth Of Electric Cars
  • 5 hours Iran downs US drone. No military response . . Just Completely Destroy their Economy. Can Senator Kerry be tried for aiding enemy ?
  • 1 hour Oil Demand Needs to Halve: Equinor
  • 7 hours Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 9 hours Ireland To Ban New Petrol And Diesel Vehicles From 2030
  • 4 hours Solar Panels at 26 cents per watt
  • 9 hours Is $60/Bbl WTI still considered a break even for Shale Oil
  • 2 hours The Plastics Problem
  • 10 hours Wonders of Shale - Gas, bringing investments and jobs to the US
  • 10 hours NATO Article 5: Attack on one member is attack on all. Members all must come to defense . . . NOT facilitate financial transactions to circumvent and foil US Sanctions. Somebody please tell Angela.
  • 5 hours Section 232 Uranium
  • 3 hours Green vs. Coal: Bavaria Seeks Fast-Track German Coal Exit in Snub to Merkel Plan
  • 3 hours Huge UK Gas Discovery
  • 6 hours Hydrogen FTW... Some Day
Alt Text

The Oil Price Risk Analysts Are Ignoring

While geopolitical tensions in the…

Alt Text

Oil Just Had Its Worst Run Since 2008

Oil prices have entered bear…

ZeroHedge

ZeroHedge

The leading economics blog online covering financial issues, geopolitics and trading.

More Info

Trending Discussions

Four Charts That Explain OPEC’s Fall From Power

Undeterred by earlier failures to jawbone the price of oil higher, a new barrage of headlines hit courtesy of Reuters reiterating more of the same, and adding a new spin. This time around, the oil production cut being considered will last nine not six months, continuing at least through the end of Q1 2018.

As Reuters adds, OPEC and non-member oil producers are considering extending a global supply cut for nine months or more to avoid a price-sapping output increase in the first quarter of next year, when demand is expected to be weak. OPEC countries including core Gulf members are discussing internally whether an extension of nine months or longer is needed to give the market more time to rebalance, the sources said. One industry source familiar with the talks said there had been discussions about extending curbs until the end of the first quarter of 2018, when crude demand should be seasonally weak.

"To increase production in those months may have a negative impact (on prices). So, we may ask for an extension until the end of Q1 of 2018," the source said.

In other words, it's desperation time for OPEC which is now throwing out every possible trial balloon to see what sticks with headline scanning algos and pushes the price of oil higher, if only temporarily.

An OPEC source told Reuters that other ideas and scenarios could be discussed, adding that core Gulf OPEC producers had talked about an extension beyond six months. Another OPEC source said it would be tough to get a consensus on prolonging curbs for more than six months but "anything can happen". A third source said an extension of up to one year could be an option.

This is in line with what we reported earlier this morning, when Saudi Energy Minister Khalid al-Falih said overnight that the OPEC-led production cut could be extended beyond 2017. "Based on consultations that I've had with participating members, I am confident the agreement will be extended into the second half of the year and possibly beyond," Falih said at an industry event in Kuala Lumpur. He was backed by Russian Energy Minister Alexander Novak who on Monday endorsed extending oil output curbs, saying it would help speed up a return to a healthier market.

There is just one problem, or rather four, as shown in the following four charts.

First, it is no longer a question merely of supply as demand has, in recent weeks, gone through a "soft patch", confirmed overnight when China recorded a decline in oil imports in April.

(Click to enlarge) Related: Oil Prices Are Where They Should Be

Second, the current rig count recovery in the U.S. is now the strongest in 30 years. Overnight, Goldman revised its forecast for U.S. production and now sees annual oil output in the U.S. increasing 285k b/d y/y on average in 2017. As a result, oil output is expected to rise 765k b/d between 4Q 2016 and 4Q 2017 across Permian, Eagle Ford, Bakken and Niobrara shale plays, and may approach an all-time high production level of 10mmpb.

(Click to enlarge)

As a result, U.S. producers are increasingly taking market share from OPEC as shown in the next chart.

(Click to enlarge)

Finally, as Morgan Stanley shows, all this has impacted the oil strip, and as a result without prospects for a tight 2018, the forward curve has moved to full contango.

(Click to enlarge)

Absent finding a way of shuttering a material portion of U.S. shale output, all current and future OPEC attempts to talk the price of oil higher will fail, unless Saudi Arabia is willing to shoulder even greater production cuts in a world where the consensus has become that roughly 2mmbpd has to be taken out of the supply side.

By ZeroHedge

More Top Reads From Oilprice.com




Download The Free Oilprice App Today

Back to homepage

Trending Discussions


Leave a comment

Leave a comment




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