• 4 minutes Tariffs to derail $83.7 Billion Chinese Investment in West Virginia
  • 9 minutes Battle for Oil Port: East Libya Forces In Full Control At Ras Lanuf
  • 17 minutes Kaplan Says Rising Oil Prices Won't Hurt US Economy
  • 5 hours Battle for Oil Port: East Libya Forces In Full Control At Ras Lanuf
  • 10 hours Corruption On The Top: Netanyahu's Wife Charged With Misuse of Public Funds for Meals
  • 16 hours Could oil demand collapse rapidly? Yup, sure could.
  • 2 hours Saudi Arabia turns to solar
  • 4 hours Russia's Energy Minister says Oil Prices Balanced at $75, so Wants to Increase OPEC + Russia Oil by 1.5 mbpd
  • 16 hours OPEC Meeting Could End Without Decision - Irony Note Added from OPEC Children's Book
  • 16 hours Gazprom Exports to EU Hit Record
  • 5 hours Saudi Arabia plans to physically cut off Qatar by moat, nuclear waste and military base
  • 21 hours China’s Plastic Waste Ban Will Leave 111 Million Tons of Trash With Nowhere To Go
  • 21 hours Kaplan Says Rising Oil Prices Won't Hurt US Economy
  • 12 hours U.S. Withdraws From U.N. Human Rights Council
  • 9 hours EU Confirms Trade Retaliation Measures vs. U.S. To Take Effect on June 22
  • 1 min Hot line, Macron: Phone Calls With Trump Are Like Sausages Best Not To Know What Is Inside
  • 14 hours What If Canada Had Wind and Not Oilsands?
  • 15 hours "The Gasoline Car Is a Car With a Future"
  • 15 hours Sell out now or hold on?
Alt Text

Goldman: Expect Another Bull Run In Oil

While oil prices are tumbling,…

Alt Text

Iran: Oil Prices Could Jump To $140 On U.S. Sanctions

Iran’s OPEC governor Hossein Kazempour…

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

Trending Discussions

‘’Oil Market Rebalancing Hasn’t Even Started Yet’’

Oil

Global oil production surged in June “as producers opened the taps,” according to a new report from the International Energy Agency (IEA). OPEC was a major culprit, with Libya and Nigeria doing their best to scuttle the production cuts made by other members.

But it wasn’t just those two countries, who are exempted from the agreed upon reductions. OPEC’s de facto leader, Saudi Arabia, also boosted output by an estimated 120,000 bpd in June, from a month earlier. That put Saudi production above 10 million barrels per day (mb/d) for the first time in 2017. Those gains, combined with the 80,000 bpd increase from Libya and a 60,000 bpd jump from Nigeria, plus some smaller contributions from Equatorial Guinea, put OPEC’s June production 340,000 bpd higher than in May. It also took the cartel’s compliance rate down to just 78 percent from 95 percent in May, the worst monthly figure for the group since its deal came into force at the start of the year.

Even worse, the production figures from Libya and Nigeria are much higher at this point than their June average. Over the past few months, the two countries have added 700,000 bpd in new supply, offsetting nearly half of the 1.8 mb/d in the combined OPEC/non-OPEC cuts. And more barrels could be on the way. Libya’s output is now above 1 mb/d, a four-year high, and Nigeria could see production “soar towards full capacity of roughly 1.8 mb/d during August,” the IEA says, up from 1.59 mb/d in June.

The IEA noted that the production cut deal is averaged over the entire compliance period through March 2018, so one month’s worth of data might not mean much. But it does not bode well. If the higher level of production continues, or if the compliance rate slips further, it would throw most projections about rebalancing out the window. “It will be a very difficult six months for the oil industry,” Fatih Birol, the IEA’s executive director, said at a conference in Istanbul. “It will be riding on the storm.”

Still, OPEC woes also mean that U.S. shale is suffering too. Prices collapsed in June, and there are many more causes for concern about the health of the shale industry than previously. The IEA said that “[f]inancial data suggests that while output might be gushing, profits are not,” with even executives from the industry saying that oil needs to be north of $50 per barrel for shale growth to be sustainable. U.S. shale might still grow in the near-term, but “the recent exuberance is being reined in,” the Paris-based energy agency concluded. Related: Halliburton Sees Oil Price Spike By 2020

For now, though, non-OPEC supply is depressing the oil market. Global oil production is up 1.2 mb/d from a year ago, and “non-OPEC [is] firmly back in growth mode,” the IEA said in its report. Next year, things don’t get much better. Non-OPEC countries – led by the U.S., Canada and Brazil – will add 1.4 mb/d of new supply, enough to meet the entire growth in global demand. As such, any gains in output from OPEC would merely return the market to a surplus. That raises a very big question about what OPEC plans on doing after March 2018 when its deal expires. For now, it has no “exit strategy.”

The silver-lining for oil prices is that demand was much more robust in the second quarter compared to the first, leaping from 1 mb/d to 1.5 mb/d. The IEA revised up its overall 2017 demand growth figure to 1.4 mb/d, an increase of 0.1 mb/d compared to last month.

Putting supply and demand together, the IEA predicts that global inventories should have drained at a rate of 0.7 mb/d in the second quarter, although incoming data suggests the drawdowns might not have actually occurred at such a pace.

Ultimately, the message from the IEA was much more pessimistic than in previous months. In May, the agency said that the “rebalancing is essentially here and, in the short term at least, is accelerating.” But that bullish sentiment has all but vanished. “[W]e need to wait a little longer to confirm if the process of re-balancing has actually started in 2Q17 and if the waning confidence shown by investors is justified or not,” the IEA wrote this week.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage

Trending Discussions


Leave a comment

Leave a comment




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