Global Oil Market
Posted: Mon May 08, 2017 7:02 pm
Fear of OPEC not extending their production curbing agreement is the only thing I see that is depressing oil prices.
From Morgan Stanley:
Oil prices have come under pressure despite a robust 2017 outlook: Notwithstanding the recent oil price decline, our analysis continues to suggest a tightening market over the next few months.
As discussed in last week's note Where are the OPEC Cuts?, lower OPEC production is yet to have its full impact on OPEC shipments, imports into consuming countries, and subsequently on visible inventories. Although demand has gone through a soft patch early in the year, it is still set to strengthen seasonally into 2H. As these two effects combine, a period of inventory draws this year is still in the cards. < As I have been telling you in my weekly podcast.
However, risks are emerging to 2018 balances: It appears however that oil markets are already looking beyond this, and into 2018. Our base case expectation for 2018 is for a balanced market with stable prices around end-2017 levels. Yet, the risks to that outlook are becoming skewed to the downside.
First, the US rig count continues to surprise, and this has production implications.
> The US rig count recovery has recently overtaken even the stellar rebound after the 2008/09 downturn, which was supported by oil prices rallying from ~$45 to ~$85/bbl within a year. Yet, the US rig count has increased by 7.3 rigs/week over the last 52 weeks, making this the strongest recovery of the last 30 years. As a rule of thumb, an increase in the rig count of 10 units boosts production by ~40 kb/d a year later. With ~390 rigs added since the trough in May 2016, the US is set up for strong supply growth next year, that could exceed 1 mb/d.
> On top of that, we expect the current OPEC agreement to be extended in May but it is unlikely to be extended again by December. < There is no way to know what OPEC will do next year, so this is pure speculation by MS
From Morgan Stanley:
Oil prices have come under pressure despite a robust 2017 outlook: Notwithstanding the recent oil price decline, our analysis continues to suggest a tightening market over the next few months.
As discussed in last week's note Where are the OPEC Cuts?, lower OPEC production is yet to have its full impact on OPEC shipments, imports into consuming countries, and subsequently on visible inventories. Although demand has gone through a soft patch early in the year, it is still set to strengthen seasonally into 2H. As these two effects combine, a period of inventory draws this year is still in the cards. < As I have been telling you in my weekly podcast.
However, risks are emerging to 2018 balances: It appears however that oil markets are already looking beyond this, and into 2018. Our base case expectation for 2018 is for a balanced market with stable prices around end-2017 levels. Yet, the risks to that outlook are becoming skewed to the downside.
First, the US rig count continues to surprise, and this has production implications.
> The US rig count recovery has recently overtaken even the stellar rebound after the 2008/09 downturn, which was supported by oil prices rallying from ~$45 to ~$85/bbl within a year. Yet, the US rig count has increased by 7.3 rigs/week over the last 52 weeks, making this the strongest recovery of the last 30 years. As a rule of thumb, an increase in the rig count of 10 units boosts production by ~40 kb/d a year later. With ~390 rigs added since the trough in May 2016, the US is set up for strong supply growth next year, that could exceed 1 mb/d.
> On top of that, we expect the current OPEC agreement to be extended in May but it is unlikely to be extended again by December. < There is no way to know what OPEC will do next year, so this is pure speculation by MS