Good news for oil prices: OPEC raised its forecast for global oil demand in 2021 by 2.3 million barrels a day above last year’s projection. It also raised its oil demand forecast in 2040 by 1.7 million barrels a day to about 111 million barrels. Bad news for oil prices: OPEC also forecast that oil output from North American shale producers will hit 7.5 million barrels a day in 2021.
Friday’s surge in oil prices on worries about deteriorating relations between the United States and Iran was a reminder of how extraordinary oil geopolitics have been recently: Just about every OPEC country–and most non-OPEC oil producers–have been pumping away without significant disruption. That’s not normal oil geopolitics for the last forty years or more. And I have to wonder how long this calm is going to last.
Oil started the day rallying on a report by the U.S. Energy Information Administration for a draw down of 6 million barrels in U.S.crude inventories for the week ended September 29. And then oil fell on reports of a surge in U.S. oil experts large enough to raise fears that U.S. light sweet crude would flood global markets just as oil demand moves into seasonal weakness.
U.S. oil producers have hedged more of their oil production in the last two weeks than in the last four to five months. In August a sample of 43 large and small U.S. producers had hedged just 23% of 2018 production. But now with West Texas Intermediate back above $52 a barrel, producers have rushed to finish hedging 2017 production, and the bulk of their 2018 production, and started to establish hedges for 2019.
Will OPEC really keep pumping less oil than it could in an effort to clear the global surplus in crude and to support prices above $50 a barrel and maybe push oil back to $60 a barrel? The annual confab of oil traders this week in Singapore is likely to tell.
The meeting of OPEC and its allies in Vienna today, September 22, ended without an extension of production cuts (scheduled to expire in March 2018) and without an agreement to make those cuts in output deeper. The after-meeting talk was full of declarations of progress toward reducing the glut in global oil inventories. And there was nary a sign of worry that higher oil prices could bring an increased supply from U.S. oil shale producers back into the market
Want to play along as the oil market tries to guess what OPEC will do at its Friday meeting? West Texas Intermediate moved down, slightly, to $49.56 a barrel, a 0.7% retreat, as of 3 p.m. New York time. International benchmark Brent moved 0.52% lower to $55.19 a barrel. The question is What’s priced into this market?
If you think you’ve heard this before, you’re absolutely right. Nonetheless, oil rallied today on a forecast from the International Energy Agency that oil stockpiles in developed countries could hit or fall below their five-year average “very soon.” West Texas Intermediate, the U.S. crude benchmark, closed up 2.2% to $49.30 a barrel. That brings us back near to the $50 level that has defined the top of the range in oil prices for much of 2017. (The high for West Texas Intermediate in 2017 is $54.45 a barrel back on February 23.)
How soon will U.S. oil production from wells in oil shale geologies peak? It’s the big question for U.S. oil producers and for a global oil market swimming in excess inventory. As long as U.S. oil production continues to increase all of OPEC’s production cuts, intended to reduce that excess supply, aren’t going to get the job done. Since October 2016, U.S. crude oil production increased by more than one million barrels per day.
U.S. crude benchmark West Texas Intermediate dropped back to $49.24 today, down 93 cents a barrel or 1.85%–on reports that OPEC production climbed in July despite new promises and a major effort to curb production. West Texas Intermediate had briefly risen to above the psychologically important $50 a barrel level today
