• 5 minutes 'No - Deal Brexit' vs 'Operation Fear' Globalist Pushback ... Impact to World Economies and Oil
  • 8 minutes China has *Already* Lost the Trade War. Meantime, the U.S. Might Sanction China’s Largest Oil Company
  • 12 minutes Will Uncle Sam Step Up and Cut Production
  • 2 hours A legitimate Request: France Wants Progress In Ukraine Before Russia Returns To G7
  • 9 hours Danish Royal Palace ‘Surprised’ By Trump Canceling Trip
  • 10 hours Recession Jitters Are Rising. Is There Reason To Worry?
  • 31 mins Used Thin Film Solar Panels at 15 Cents per Watt
  • 4 hours IS ANOTHER MIDDLE EAST WAR REQUIRED TO BOLSTER THE OIL PRICE
  • 1 hour China has invested btw $30 - $40 Billon in Canadian Oil Sands. Trump should put 10% tariffs on all Chinese oil exported into or thru U.S. in which Chinese companies have invested .
  • 16 hours Wonders of US Shale: US Shale Benefits: The U.S. leads global petroleum and natural gas production with record growth in 2018
  • 2 hours Strait Of Hormuz As a Breakpoint: Germany Not Taking Part In U.S. Naval Mission
  • 18 mins US to Drown the World in Oil
  • 16 hours US Shale Economic Impact: GDP gain realized in shale boom’s first 10 years
  • 16 hours TRUMP'S FORMER 'CHRISTIAN LIAISON' SAYS DEEPWATER HORIZON DISASTER WAS GOD'S PUNISHMENT FOR OBAMA ISRAEL DIVISION
  • 15 hours Domino Effect: Rashida Tlaib Rejects Israel's Offer For 'Humanitarian' Visit To West Bank
  • 1 hour LA Solar Power/Storage Contract
  • 14 hours NATGAS, LNG, Technology, benefits etc , cleaner global energy fuel
  • 1 hour Iran Is Winning Big In The Middle East
Alt Text

Oil Markets Face Nightmare Scenario

Financial markets saw their worst…

Alt Text

The Threat That Will Send Oil Down To $10

French bank BNP Paribas published…

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

Premium Content

Is The Downside Risk For Oil Growing?

Oil prices sank on Monday on a large increase in the U.S. rig count last week, which raised fears of a renewed drilling campaign from American shale drillers.

The U.S. oil rig count jumped by 10 in the week ending on January 25, according to Baker Hughes, the first increase since mid-December. In fact, over the past eight months, there have only been three other weeks in which the rig count increased by double-digits. The surge in the rig count ended several consecutive weeks of sharp declines.

But to keep things in perspective, an increase over a single week is only one data point, and does not yet amount to a trend. Moreover, because of the huge decline the week prior, the increase may not be all that significant. “As the oil rig count had fallen by 21 the week before, this is likely to be a countermovement,” Commerzbank wrote in a note on Monday. “The oil rig count has decreased by 23 since the beginning of the year, which would constitute the most pronounced monthly decline since April 2016. Clearly the significantly lower prices in the fourth quarter are prompting shale oil producers to exercise restraint.”

On the flip side, prices have increased substantially since hitting a low point in December, and the market is on track to post the best January in 14 years. That means that drilling could in fact begin to pick up, which “argues against any further rise in oil prices, though prices are also unlikely to fall significantly,” Commerzbank concluded. Related: A Rare State Of Affairs For Refiners

Looking out over the rest of 2019, most analysts still see significant, if steady, increases in oil prices as the market continues to tighten. “We still expect Brent and WTI prices to continue to increase in 1H19 since we see the inventory situation as far better than the last time cuts started in early 2017,” Barclays wrote in a note last week. “We see Brent prices improving to $70/b in 2019 and to $75/b in 2020 as the market weighs inventory drawdown against the prospect of macroeconomic slowdown.”

However, the investment bank offered a cautionary caveat, arguing that risks to its forecast are on the downside. The bank says that “several key market participants” can compensate an overly tight market with additional output, but that there isn’t an equivalent if the situation is reverse. “[T]here is no equivalent mechanism for balancing an unknown and unquantifiable oversupply,” Barclays concluded. In other words, if a supply glut resurfaces, perhaps because of an economic downturn, OPEC+ would not be able to cut deeper in order to balance the market. The upshot is that a sustained slide in prices is more likely than a spike. Related: Saudi Arabia: We’ll Pump The World’s Very Last Barrel Of Oil

Either way, the oil market is now characterized by very quick changes to supply/demand balances. Last year, OPEC+ feared a shortage, so it ramped up supplies, only to realize it had over produced by the end of the year. Barclays says the same thing might happen again this year. “So targeting a balanced market by adjusting supply in current time risks either over- or underproducing, depending on where non-OPEC supply and demand are and will be,” Barclays wrote.

The investment bank says that the precise elasticity of U.S. shale supply is still not clear, nor is global demand. U.S. shale surged last year when prices rose, but demand also cooled when prices climbed too high.

Barclays says that OPEC+ would be wise to hold off on pushing prices too high because the U.S. shale industry is still laying out drilling plans for this year. Delaying a price increase could “keep pressure on 2019 spending plans, at least for small, medium and private producers and at best for larger E&P companies,” Barclays said.

Indeed, the shale industry has shown multiple signs of slowing down, including a declining rig count, slower production growth, lower completion rates, and gloomy assessments from shale executives themselves.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment
  • Daniel Uhl on January 29 2019 said:
    Since when is a one percent increase in anything a large increase. Quite being a sensationist.
    10 rigs is one percent, now if we would get a 25 to 50 percent increase in rig activity that would be something.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play