Kemp: Feast Or Famine? Oil Market In 2018
(John Kemp is a Reuters market analyst. The views expressed are his own)
LONDON, Oct 10 (Reuters) - “Behold, there come seven years of great plenty throughout all the land of Egypt: and there shall arise after them seven years of famine; and all the plenty shall be forgotten.”
In the Bible, Joseph was interpreting Pharaoh’s dream of seven fat and seven thin cows, but he might have been talking about the oil market (“Genesis”, chapter 41, verses 29-30).
Just as Pharaoh’s kingdom experienced a cycle of feast and famine, depending on the Nile inundation, the oil market swings between periods of undersupply and oversupply.
“The problem of oil is that there is always too much or too little,” as Myron Watkins, professor of economics at New York University, wrote 80 years ago (“Oil: stabilization or conservation?” Watkins, 1937).
Ancient Egypt’s food supply was alternately plentiful or scarce, but only rarely “just enough”, which is why the state had granaries to store excess from the good harvests to cover the poor ones.
The oil market, too, carries stocks from periods of oversupply to periods of undersupply, and cycles regularly from contango to backwardation as it does so.
The natural state of the oil market is not just enough, any more than the natural state of Pharaoh’s food supply was just enough.
OPEC and other commentators, including myself, characterise the process of restricting oil production and reducing excess stocks as one of market “rebalancing”.
But while rebalancing is useful shorthand for a complicated set of adjustments to production, consumption and stocks, it does not imply the process ends with a “balanced” oil market.
The oil market is rarely balanced, and never for very long.
In the past, periods of oversupply and contango were swiftly followed by a return to undersupply and backwardation (http://tmsnrt.rs/2zcg3BC).
Something similar appears to be underway at present, with Brent and other international crude grades moving into backwardation over the last three months, after trading in contango since the middle of 2014.
Most analysts have expressed concern about the re-emergence of oversupply, a renewed rise in crude stocks, and how OPEC and its allies will exit from their current production deal in 2018.
123
View Full Article
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.
- Weatherford CEO's Rebound Plan Relies On Getting Smaller
- Iran Says Oil Market Is Too Tight For US Zero Exports Target
- China's Squeezed 'Teapots' Eye Petchem Path To Riches
- Baker Hughes: US Drillers Add Oil Rigs For Second Week In Three
- Venezuela Hands China More Oil Presence, But No Mention Of New Funds
- Falcon Oil Declares Commercial Flow Test Results for Shenandoah Well
- Japan Failing to Meet Corporate Demand for Clean Power: Amazon
- Macquarie Strategists Expect Brent Oil Price to Grind Higher
- UK Oil Regulator Publishes New Emissions Reduction Plan
- PetroChina Posts Higher Annual Profit on Higher Production
- Pennsylvania County Joins List of Local Govts Suing Big Oil over Climate
- McDermott Settles Reficar Dispute
- US, SKorea Launch Task Force to Stop Illicit Refined Oil Flows into NKorea
- Russian Navy Enters Warship-Crowded Red Sea Amid Houthi Attacks
- USA Commercial Crude Oil Inventories Increase
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- 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
- 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
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- 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