Kemp: Oil market rebalancing

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cmm3rd
Posts: 420
Joined: Tue Jan 08, 2013 4:44 pm

Kemp: Oil market rebalancing

Post by cmm3rd »

From John Kemp, Reuters:

COLUMN-Oil market starts to rebalance at lower prices: Kemp - Reuters News
20-Aug-2019 12:10:28
John Kemp is a Reuters market analyst. The views expressed are his own
• Chartbook: https://tmsnrt.rs/2ZbDOKZ
By John Kemp
LONDON, Aug 20 (Reuters) - Global oil consumption is falling at the fastest rate for almost five years as manufacturing activity and trade flows slip around the world and vehicle production tumbles.

Consumption in the top 18 consuming countries, each using more than 1 million barrels per day (bpd), fell by almost 0.2% in the three months between March and May compared with the same period a year earlier.


Oil use is falling at the fastest rate since the third quarter of 2014, according to national government data submitted to the Joint Organisations Data Initiative.

Falling consumption five years ago, combined with surging U.S. shale output and Saudi Arabia’s refusal to cut production, led to the price slump in 2014-2016.

This time around, consumption has also stalled, and shale output is surging again, but Saudi production cuts have limited the fall in prices.

Front-month Brent futures prices have so far fallen by $27 per barrel, or just over 30%, from their recent peak compared with a decline of almost $90 - or 77% - between June 2014 and January 2016.

Like the earlier episode, however, a sustained period of lower prices will be needed to curb shale production growth and make consumption more affordable to restore market balance.

SHALE ADAPTATION

The adjustment is already underway, with the number of rigs drilling for oil in the United States down by almost 120, or 13%, over the last nine months (https://tmsnrt.rs/2ZbDOKZ).

U.S. crude oil production growth has decelerated to a year-on-year rate of around 1.6 million bpd, down from more than 2.0 million bpd at the end of 2018.

As a rule of thumb, it takes 3-4 months for a change in benchmark oil prices to filter through to U.S. drilling rates and 9-12 months to affect production.

The sustained fall in oil prices since October 2018 will therefore lead to much slower growth in U.S. production in the fourth quarter of 2019 and the first half of 2020.

Production and consumption should rebalance by mid-2020, provided the global economy does not slide into a recession in the meantime, cutting oil use further.

Recession risk is now the single biggest factor driving oil prices because it will determine whether recent price falls will be enough to rebalance the market, or whether a deeper and longer slump is needed.
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Kemp: Oil market rebalancing

Post by dan_s »

I don't know where John gets his oil consumption growth numbers, but his comment that U.S. oil production is "surging" is not correct. I sent John an email this morning similar to the Flash Alert that I sent to all EPG members at 2PM CT. Each month this year, EIA's "Short Term Energy Outlook" (the "STEO" report) said U.S. oil production will increase from the previous month. Each month this year EIA has been wrong, but they keep saying it anyway.

Keep in mind that John is based in London. My guess is that the mood in the UK is grim. The last thing they need in Europe is a an increase in fuel costs.
Dan Steffens
Energy Prospectus Group
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