Global Oil Market - December 5

[dan_s]

OPEC: We’ll discuss exit strategy in June. Saudi oil minister Khalid al-Falih told reporters on Monday that the group will have a better sense of what they will do next by June. “[W]e think that the outlook for when we will hit the balanced market will be clearer in June, and we will start thinking of what do we do in 2019,” he said. However, he also said that the expectation was that “we will not alter our course in the second half of the year.” When asked about the possibility of tightening the market too much, al-Falih dismissed those claims. “We have close to 2 million barrels (per day, bpd) of spare capacity so our ability to bring back production in case of need for global supply security goes beyond the amount of cuts we have made,” Falih said. “There will be plenty of supply to respond to any need in the market.” < If you listened to my podcast, you know that OECD inventories will be below the 5-year average by June. The main thing to remember is the oil demand is seasonal. Demand is soft in Q1 and accelerates in Q2 and Q3 each year. For example, demand increased by 2.3 million barrels per day from Q1 to Q2 in 2017.

OPEC production fell 80,000 bpd in November. A Bloomberg survey estimates that total OPEC production declined by 80,000 bpd in November compared to a month earlier, dropping to a six-month low. Output stood at 32.47 million barrels per day, the lowest total since May. Much of the decline was the result of a 100,000-bpd decline from Angola, due to field maintenance.

Goldman hikes oil price forecast. Goldman Sachs boosted its oil price forecast following the OPEC meeting, citing stronger commitment from the cartel than expected. The investment bank said that it expects crude prices to gain 9 percent over the next year. Still, Goldman said U.S. shale will add new supply. “We continue to find OPEC’s assessment of the supply response to higher prices as too conservative, especially for shale,” Goldman analysts wrote in a December 4 note. “We believe evidence of this response, with higher shale drilling activity and production in coming months, will play an important role in avoiding a policy overshoot from OPEC.” < Even though oil prices have increased, I don't think we will see a big increase in the active rig count, primarily because most of the Tier One rigs are already working. See note below.

Shale drillers not ratcheting up drilling in response to OPEC. Some of the largest U.S. shale drillers have not signaled any intention to aggressively drill after OPEC decided to extend their cuts through the end of 2018. The shift from growth-at-all-costs to a focus on profits and shareholder returns seems to be genuine, at least for a few companies. Bloomberg profiled several prominent shale drillers, including Pioneer Natural Resources (NYSE: PXD), Parsley Energy (NYSE: PE), and Newfield Exploration (NYSE: NFX), and the general reaction was that the shale executives would maintain a focus on cash flow.

Citi: Commodities bullish in 2018. Citi says that there is a lot to like about commodities next year, with demand growing robustly into 2019. China remains a wildcard, with the possibility of slower growth. However, the campaign by the Chinese government to cut down on pollution and overcapacity will also keep supply tight. The Bloomberg Commodity Index has increased almost 10 percent since the second half of June. “Both year-to-date commodity performance and expected higher global growth point to potentially tighter balances across many commodities,” Citi analysts wrote in an annual report. “But uncertainties about China’s ‘New Economy’ and the lingering impacts of its commodity intensive ‘Old Economy’ create bumps in the road ahead.” < It seems that each year the analysts under-estimated China's demand for more energy.

[dan_s]

Good Stuff: https://oilprice.com/Energy/Crude-Oil/T ... Watch.html