OPEC Fightback Sees US Stocks Crumble
(Bloomberg) -- OPEC’s finally getting some credibility back behind its swagger, ahead of the oil group’s meeting later this month in Vienna.
The cartel’s members complied to the tune of 104 percent in October on orders to pull back 1.2 million barrels a day, according to Bloomberg data. Stockpiles are drawing and Brent closed at at two-year high of $64.27/b on Monday.
So what’s changed?
Some say a rise in geopolitical risk has pushed up prices, but other analysts think there’s a more permanent shift underway.
"We do not see the latest rise in prices as speculative," said Paul Horsnell, global head of commodity strategy at Standard Chartered, in a recent note. "We think the move reflects the start of a widespread re-evalution."
Traders, he said, are rethinking how much oil will be produced and drawn down from stockpiles, especially in the U.S.
Looking at the U.S. gives several encouraging signs. Stockpiles compared to the five-year average have continually fallen in 2017. U.S. crude and product inventories, including the SPR, have fallen by 93.8 million barrels since since January. Latest weekly data from the EIA show that U.S. crude stockpiles have drawn by a further 2.4 million barrels to 454.9 million barrels. That’s the seventh consecutive weekly draw.
It isn’t just stockpiles, U.S. shale output growth is tapering off. Permian production has grown almost 15 percent to 2.43 million barrels a day in September from 2.13 million barrels a day in January, while the Bakken is relatively unchanged and the Eagle Ford falling to 1.13 million barrels a day from 1.7 million barrels a day, according to BTU Analytics data.
This slowdown has come even as breakevens in key basins have fallen, with costs in both the Midland basin and West Eagle Ford declining by around 45% since January 2014, according to BTU Analytics. And while shale output is likely to get cheaper until mid-2019, according to Ebele Kemery, head of energy investing at JPMorgan in New York, the "greatest leaps forward in lowering costs are now behind us," said Michael Poulsen, senior oil risk analyst with Global Risk Management.
Meanwhile, OPEC compliance with production cuts agreed last year rose by 23 percent month-on-month to 104 percent in October, according to a Bloomberg survey published on Wednesday. That’s the second-highest level since the organization began curbing output in January. OPEC output fell by 180,000 barrels a day to 32.59 million barrels a day, Bloomberg data show.
While prices are a bit better now, the coming years don’t look so great. OPEC is probably going to need to sustain its cuts for another year. Even if the cuts finish in late 2018, it’s looking at zero growth in demand for its crude until 2025 as shale takes all the new market share.
OPEC’s World Oil Outlook 2017, published today, gives further encouragement. OPEC expects shale oil production to peak after 2025 and decline from about 2030. OPEC will then be required to increase its own output from about 33 million barrels a day in 2025 to 41.4 million in 2040, according to the report.
To contact the reporter on this story: Christopher Sell in London at csell1@bloomberg.net. To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net; Lisa Fleisher at lfleisher2@bloomberg.net.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Blockchain Demands Attention in Oil and Gas
- Macquarie Sees USA Oil Production Exiting 2024 at 14MM Barrels Per Day
- CNPC Opens Sea-Land Oil Storage and Transport Facility in Bangladesh
- Oman Sees Increasing Ship-to-Ship Transfers of Russian Oil Bound for India
- US Govt Makes Record Investment of $6B for Industrial Decarbonization
- Perenco Still Searching for Missing Person After Platform Incident
- Eni, Fincantieri, RINA Ink Deal on Maritime Decarbonization
- Oil Falls as US Inventories Increase
- Czech Utility CEZ Bucks Weaker Prices, Demand to Log Record Annual Profit
- Ithaca Energy Studies Deal for Eni's UK Upstream Assets
- Equinor Makes Discovery in North Sea
- Standard Chartered Reiterates $94 Brent Call
- India Halts Russia Oil Supplies From Sanctioned Tanker Giant
- DOI Announces Proposal for Second GOM Offshore Wind Auction
- Centcom, Dryad Outline Recent Moves Around Red Sea Region
- PetroChina Set to Receive Venezuelan Oil
- Czech Conglomerate to Buy Major Stake in Gasnet for $917MM
- US DOE Offers $44MM in Funding to Boost Clean Power Distribution
- Oil Settles Lower as Stronger Dollar Offsets Tighter Market
- UK Grid Operator Receives Aid to Advance Rural Decarbonization
- Chinese Mega Company Makes Major Oilfield Discovery
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Another Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Vessel Sinks in Red Sea After Missile Strike
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension
- Equinor Makes Discovery in North Sea
- Standard Chartered Reiterates $94 Brent Call