Wednesday, 21 February, 2018

OPEC Reports Oil Demand Rose in 2017

Minister Khalid al Falih addresses a news conference after an OPEC meeting in Vienna Austria Minister Khalid al Falih addresses a news conference after an OPEC meeting in Vienna Austria
Nellie Chapman | 20 January, 2018, 04:08

Latest report from the International Energy Agency (IEA) predicts 2018 could be "record-setting" for the USA as it looks set to dominate the global market.

On Tuesday, the U.S. Energy Information Administration forecast said U.S. shale oil production will grow by 111,000 barrels a day to almost 6.6 million in February.

One of the key premises of the OPEC's production cut was to bring down the USA oil inventories back to its 5 year average in order to reduce the oversupply in the markets.

Global demand for oil was robust in 2017, but the IEA is keeping its demand growth estimate for 2018 unchanged at 1.3 million bpd, down from 1.6 million bpd in 2017, with total consumption expected at 99.1 million bpd.

The United States Energy Information Administration (EIA), has attributed the current surge in oil prices to shutdown of the Forties Pipeline in the North Sea on December 11, as a result of a crack in the pipeline, which remained closed through December 30. Brent crude's target is $65.52 to $64.53. "U.S. oil producers will ramp up production in the coming months". Energized by new investment, US production could top 11 million barrels a day next year, surpassing both Saudi and Russian output, according to USA government forecasts.

Just in December, Venezuela's output sank by 216,000 bpd from November to 1.621 million bpd, the OPEC figures showed, a 29-percent drop from December 2016 levels. Despite increased costs, OPEC cited a JPMorgan report that found US shale exploration and production companies could achieve "decent rates of return" at $60 per barrel even if costs rose by another 15%.

At the same time, oil imports grew by 292,000 barrels last week. In November 2016, OPEC together with 11 non-OPEC oil producers, such as Russian Federation, committed to make sizeable cuts to their oil production and export levels. The investment bank sees Brent and West Texas Intermediate average price forecasts at United States dollars 62 and USD 57.5 per barrel for 2018, respectively.

Rising US Shale Production - A Threat? "Prices are not the main factor for us".

Prices were being buoyed by lower crude oil stocks, healthy demand and geopolitical tensions, the cartel said. I put this data together because I believe it shows what a huge outlier the big drop in USA storage levels in last few months of 2017 actually is. The cartel expects the oil markets to rebalance by the second half of 2018, taking the oil prices to the $65-$70 per barrel range over the next few months, ceteris paribus (all other things being equal). So you get stimulation both from the falling oil price and from loose policy. The agency previously said that US output could reach 10 million barrels a day in February and surge to 11 million in 2019.

The IEA warned that mostly due to USA shale, total supply growth could exceed demand growth.

The Paris-based IEA said in its latest Oil Market Report from December that "On considering the final component in the balance-non-OPEC production-we see that 2018 might not be quite so happy for OPEC producers". We expect bunker fuel prices may stay steady next week.

The big concern is price and if they worry that prices are rising too fast?