Energy Prospectus

Martijn Rats, CFA – Morgan Stanley
March 1, 2018 10:16 AM GMT
Martijn Rats is head of the European Oil & Gas Research team and lead analyst on key stocks including Royal Dutch Shell, BP, Total and Eni. He is also the strategist for Morgan Stanley Research’s oil price forecasts.

The EIA's latest Petroleum Supply Monthly showed US production rolled over in December, down by 108 kb/d MoM, as weaker Gulf of Mexico output offset a smaller increase in shale production. Demand for refined products fell MoM from November, but was up 185 kbpd for 2017 as a whole, driven by middle distillates.

US crude production fell by 108 kb/d MoM in December. This was in contrast to the 89 kbpd growth implied by the weekly data, as growth in output from shale states was offset by a drop in the Gulf of Mexico. Production from 'shale' states saw record YoY growth, but a slower pace of MoM additions. States where production from shale reservoirs dominates (Texas, North Dakota, amongst others) rose by 50 kb/d from November, a slower pace than the average 260 kb/d MoM growth seen over the previous three months. Year-on-year growth accelerated to a record rate of 1.4 mb/d.

The United States will dominate the oil industry for the next 5 years, International Energy Agency forecasts. CNBC.

Oil demand will keep expanding over the next five years, and the United States will fulfill most of the world's growing appetite, the International Energy Agency said on Monday. In its latest annual outlook, the IEA forecasted that strong economic growth around the world will continue to support strong oil consumption until at least 2023. Along with surging output from the U.S., rising production in Canada, Brazil and Norway will be able to meet higher demand through 2020, the energy policy adviser said. Beyond that, however, the IEA warned that oil supply could become tight unless investment in new production rebounds from historic declines in recent years. "Upstream investment shows little sign of recovering from its plunge in 2015-2016, which raises concerns about whether adequate supply will be available to offset natural field declines and meet robust demand growth after 2020," IEA Executive Director Fatih Birol wrote.

Keep in mind that "surging output from the U.S." only happens with higher oil prices.

John Kemp at Reuters 3-5-2018:

Global growth remains strong and oil consumption is set to increase by more than 1.5 million barrels per day for the fourth year running in 2018.

Most of the excess inventories that accumulated between 2014 and 2016 have been eliminated, with oil stocks in industrialised countries now reduced close to the five-year average.

Production from U.S. shale plays is rising strongly but OPEC’s willingness to sacrifice market share to support prices has convinced many investors that downside risk is limited in the near term.

For now, the oil market remains locked in a bullish phase.

The bull market has survived its first test of resolve, but there will be others.