For those of you worried about the NYT article

[dan_s]

THIRD QUARTER 2019
Goehring & Rozencwajg
Natural Resource Market Commentary
November 5, 2019

As we discussed in the introduction, the production slowdown experienced by the US oil shales in the last nine months is the inflection point we have long discussed. Our research tells us that the robust growth exhibited by the shale plays in the US will be near impossible to repeat as we progress into the coming decade. At the same time the shales are slowing, non-OPEC conventional oil production growth outside of the US has turned negative and our analysis tells us that large disappointments loom in this still critical and underappreciated sector of the oil market.

Everyone thought that 2019 would see a year of strong non-OPEC growth outside of the US. For example, the International Energy Agency (IEA) originally estimated that non-OPEC/non-US supply would grow by 600,000 b/d. However, the IEA has severely revised downward these optimistic estimates to only 100,000 b/d and we believe these numbers will be revised negative before 2019 is over. For 2020 the IEA is again projecting strong non-OPEC production outside of the US—up 800,000 b/d. Again, we believe this number is far too optimistic. Please read the oil section of this letter in which we talk about the reasons why the IEA’s 2019 projection for non-OPEC ex the US was far too hopeful, and why their 2020 projection will be far too optimistic as well.

Although it has received no attention, global inventories for the first six months of 2019 should have built by over 160 mm b/d according to IEA numbers; however, actual OECD inventory
builds, according to the IEA have only built by 60 mm barrels. The 100-mm-barrel discrepancy between the IEA’s projected builds versus actually builds represents “missing” barrels—barrels that are supposed to be in inventory according to the IEA figures, but aren’t. The IEA has spent most of 2019 revising down its estimates for demand, but the slowdown is not manifesting itself in inventory behavior. For the first six months of 2019, the IEA has reduced its estimates of demand to only 500,000 b/d, but if we are right, and these 600,000 barrels per day (b/d) of “missing barrels” represent demand underestimation, then oil demand is far stronger than generally portrayed.
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My take on the NYT article posted here yesterday and sent to me by three EPG members is that when you look at non-OPEC/non-US oil supply growth you must remember that outside of the four areas of growth mentioned in NTY article all of the rest of it is on steady decline. Non-OPEC/Non-US production is ~45% of global oil supply. The average decline rate is 5% to 6%, so a lot of new wells must be drilled each year just to hold it flat and there has been a drastic decrease in E&P spending the last three years.

Non-OPEC/Non-U.S. & Non-Russia oil production has a base decline rate of 1.2 to 1.4 million barrels per day each year. The decline rate has accelerated over the last five years.

[dan_s]

Most of the Wall Street Gang believes there is a surplus of oil today.

In the Real World: "While it may be counter-intuitive, the oil market is in deficit today and has been for nearly three years. After peaking at nearly 450 mm bbl above average, OECD inventories have repaired themselves by 75%. In the US (by far the largest source of OECD inventories), core inventories drew during the first nine months of 2019 by 40 mm bbl during a period that normally sees them build by 1.4 mm bbl. This implies the market was undersupplied by 150,000 b/d. While the data for the OECD as a whole came in slightly weaker, it still suggested a balanced market for the first nine months of the year based upon preliminary data. We should point out that the IEA has been revising its most recent inventory data and so we will have to wait to see if the most recent data ends up being revised down from here. Both WTI and Brent markets remain firmly “backwardized,” confirming the market is indeed tight."

BTW: Global demand for oil is seasonal. From November 1 to June 30 demand for oil will increase by 1.5 to 2.0 million barrels per day. It happens each year unless there is a GLOBAL RECESSION.