• 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 Iran Is Winning Big In The Middle East
  • 48 mins 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 .
  • 6 hours Tit For Tat: China Strikes Back In Trade Dispute With U.S. With New Tariffs
  • 13 hours Trump cancels Denmark visit amid spat over sale of Greenland
  • 26 mins Wonders of US Shale: US Shale Benefits: The U.S. leads global petroleum and natural gas production with record growth in 2018
  • 17 mins Strong, the Strongest: Audi To Join Mercedes, BMW Development Alliance
  • 22 hours US to Drown the World in Oil
  • 4 hours Not The Onion: Vivienne Westwood Says Greta Thunberg Should Run the World
  • 3 hours IS ANOTHER MIDDLE EAST WAR REQUIRED TO BOLSTER THE OIL PRICE
  • 12 hours OPEC will consider all options. What options do they have ?
  • 1 day Nor Chicago, nor Detroit: Killings By Police Divide Rio De Janeiro Weary Of Crime
  • 1 day Gretta Thunbergs zero carbon voyage carbon foot print of carbon fibre manufacture
  • 20 hours Long Range Attack On Saudi Oil Field Ends War On Yemen
Alt Text

The Threat That Will Send Oil Down To $10

French bank BNP Paribas published…

Alt Text

Oil Crashes On New Trade War Escalation

Oil prices opened the week…

Alt Text

Texas Crude Is Fetching Better Prices

New midstream capacity allows more…

Arthur Berman

Arthur Berman

Arthur E. Berman is a petroleum geologist with 36 years of oil and gas industry experience. He is an expert on U.S. shale plays and…

More Info

Premium Content

This Suggests An Oil Price Recovery Might Be On Its Way

Oil futures prices are below $38 but there is a glimmer of hope in EIA’s Short-Term Energy Outlook (STEO) released today–world consumption increased in November and supply fell.

OPEC did what everyone expected last week–nothing–and oil markets reacted badly. Brent futures fell 15% from $47.44 before the OPEC meeting on Friday (December 4) to $40.25 today (December 8). I have been saying that oil prices have been too high based on fundamentals and need to move lower in order for oil markets to balance.

Now we may be seeing the beginnings of that trend. In November, world liquids supply fell 190,000 bpd and consumption increased 320,000 bpd (Figure 1).

Figure 1. World liquids supply and consumption, July 2013-November 2015.

Source: EIA STEO December 2015 & Labyrinth Consulting Services, Inc.

(click image to enlarge) Related: OPEC Isn’t Dead. It’s Shifting Strategies

That lowers the production surplus (supply minus consumption) to 1.34 million bpd (Figure 2) which is not great but is a big improvement–a 520,000 bpd decrease–over October and is one of the better months of 2015.

Figure 2. World liquids production surplus of deficit and Brent crude oil price.

Source: EIA STEO December 2015 & Labyrinth Consulting Services, Inc.

(click image to enlarge) Related: The Pain Game – How Low Can Oil Prices Go?

Most analysts are focused on the over-supply but I worry more about demand. Lower prices have forced producers to cut back and world production has been falling for the last 4 months. Demand is a tougher problem because people have to change their behavior and use more oil. Consumption is not the same as demand but it is a proxy and has increased year-over-year for 3 consecutive months (Figure 3) despite the medium-term downward trend (3-month moving average).

Figure 3. Year-over-year world liquids consumption change.

Source: EIA STEO December 2015 & Labyrinth Consulting Services, Inc.

(click image to enlarge)

Although U.S. production continues to decline, the EIA has revised the amount of decrease downward over the past 2 months (Figure 4). Related: Venezuelan Government Losing Grip As Low Oil Prices Take Their Toll

Figure 4. U.S. crude oil production.

Source: EIA STEO December 2015 & Labyrinth Consulting Services, Inc.

(click image to enlarge)

U.S. production has declined 420,000 bopd since April but last month’s estimate was -490,000 bopd and the September estimate was -590,000 bopd. Although U.S. production is important, it alone will not fix the world supply surplus. At the same time, I expect it will continue to decline and EIA forecasts a decrease of 1.12 million bopd by September 2016.

It is too early for optimism. The global market remains over-supplied by 1.3 million bpd and a few months do not necessarily make a trend. At the same time, with prices now below $40 per barrel, I am encouraged that there is the potential for progress toward market balance and eventual price recovery.

By Art Berman

More Top Reads From Oilprice.com:

 




Download The Free Oilprice App Today

Back to homepage


Leave a comment
  • Lee James on December 09 2015 said:
    As the price of crude recovers, hopefully we have learned during this painful interlude that for a great variety of reasons, we need to move into the next age of energy. The next age of energy is not fossil fuel. It will not happen at once, but transition we must.

Leave a comment




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