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Current estimates by the U.S. Energy Information Administration (EIA) show that U.S. crude oil production growth in 2019 should basically offset the new production cut that OPEC and partners agreed to launch in a bid to rebalance the market and lift oil out of the bear market.
Earlier this month, OPEC and its Russia-led non-OPEC allies reached a deal to reduce their combined oil production by 1.2 million bpd for six months starting January, with an option to review the agreement in April.
The 1.2-million-bpd cut is basically the currently expected production growth in the United States for next year.
According to EIA’s December Short-Term Energy Outlook (STEO), U.S. crude oil production is expected to rise to 12.06 million bpd in 2019 from expected average production of 10.88 million bpd this year. This year’s production growth—if the 10.88 million bpd output forecast materializes—would be 1.53 million bpd, on top of the 2017 U.S. production of 9.35 million bpd.
For 2019, production from the U.S. Gulf of Mexico is seen rising to 1.95 million bpd from 1.73 million bpd expected for 2018, while the Lower 48 oil production is expected to jump to 9.63 million bpd in 2019 from 8.68 million bpd in 2018.
“Relative to how big this looming supply tsunami is, [the OPEC cut] is not nearly enough to prevent big inventory builds next year,” Robert McNally, president of Washington, D.C.-based consultancy Rapidan Energy, told Reuters.
Saudi Energy Minister Khalid al-Falih tried to talk prices up on Wednesday, saying that he expects global oil inventories to drop by the end of the first quarter next year. But on Thursday, another global sell-off in equities after the Fed hike dragged oil prices down again, with WTI Crude down 2.66 percent at $46.89 and Brent Crude down 1.92 percent at $56.14 at 10:28 a.m. EST.
Fears of oil oversupply and of potential global economic growth slowdown almost immediately wiped out the extremely short-lived positive sentiment in the oil market after the OPEC/non-OPEC deal two weeks ago. Market participants are now looking to rising U.S. oil production and possible demand slowdown, and a bearish mood has persisted since the production cut agreement. Fierce sell-offs in equities in the past few days replaced the traditional “Santa Rally”, further depressing the price of oil.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.