Julian Lee/ Bloomberg:
OPEC Is in for a shale surge shock in 2019
Producers face a supply glut, despite the return of sanctions against Iran.
Surging shale means the group will have to extend output cuts.
It was meant to be a short, sharp shock. Instead, OPEC members are facing a long, slow grind with no end in sight.
The deal reached with several non-OPEC countries in 2016 to cut oil supply and drain excess inventories was meant to last just six months. But after last week's ugly slide into a bear market for prices, the agreement looks likely to drag into a third year as the group faces having to make further cuts in 2019.
Taking 1.8 million barrels a day of oil off the market from January 2017 was meant to drain excess inventories by the middle of that year, restore prices to an undefined “acceptable” level and balance supply and demand. Instead, the glut persisted. Although better than expected, compliance with the agreement was not complete and it was not until the deal was extended and Saudi Arabia started cutting shipments to the U.S. in the middle of 2017 that prices really began to pick up.
A further extension to the deal helped to push prices up to $80 a barrel by mid-2018, earning tweeted rebukes from President Donald Trump that prompted a relaxation of the cuts and a surge in supply from those with the capacity to do so — principally Saudi Arabia and Russia. Total OPEC output is now the highest since before the cuts were introduced, even after allowing for changes in membership, while Russia's hit a post-Soviet high of 11.4 million barrels a day last month.
But the recovery in oil prices has been a double-edged sword for OPEC and friends. Sure, it has boosted revenues for most — Venezuela and soon Iran being the exceptions — but it has also lit a fire under U.S. shale oil production.
The latest weekly and monthly data both show American oil output up by 2 million barrels a day year on year. That's equivalent to adding the combined production of OPEC members Nigeria and Gabon in the space of 12 months. And it comes at a time when shale growth is being hampered by a lack of pipeline capacity to move crude from the Permian Basin in Texas to the refining and export facilities on the Gulf of Mexico. Those bottlenecks should ease next year, allowing supply to rise by another million barrels a day by the end of 2019, according to the Energy Information Administration. On past performance, that forecast could increase significantly.
Perversely, renewed U.S. sanctions on Iran, which came into effect on Nov. 5, have added to the perception of a growing supply glut. The country's exports have fallen by almost 40 percent since April, the last month before President Trump announced that he was pulling the U.S. out of the nuclear deal. But unexpectedly generous waivers from sanctions , which were extended to several countries that had already halted purchases, have raised the possibility that Iran's overseas oil sales could actually increase in November.
Oil ministers from the OPEC+ group that cut output are meeting today in Abu Dhabi to assess their ongoing collaboration. The get-together won't set policy, that will have to wait until the full meetings in Vienna in early December, but it will set the tone for those gatherings. There is already talk between Saudi Arabia and Russia of a need to extend restraint into 2019 and both may consider reducing their own output back to their individual target levels, having boosted it in recent months to make up some of the shortfalls from Venezuela and Iran.
OPEC's own analysis shows the need to prolong, or even deepen, the cuts. If the group doesn't alter its current track, global oil stockpiles are set to rise by around 1.8 million barrels a day in the first quarter of 2019 and to continue building throughout the year.
Producers may get a short respite from falling prices in the next few weeks. Demand from U.S. refineries could rise by as much as 1.5 million barrels a day by the end of the year, as plants return from their normal fall maintenance. But that boost will be short-lived. 2019 is looking like another difficult year for OPEC and friends.
Julian Lee is an oil strategist for Bloomberg First Word. Previously he worked as a senior analyst at the Centre for Global Energy Studies. Petroleumworld does not necessarily share these views.
Editor's Note: This article was originally published by Bloomberg , Nov. 11, 2018. All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld.
Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator. Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.
If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. Internet web links to http://www.petroleumworld.com are appreciated.
Petroleumworld Copyright© 1999-2018 Petroleumworld or respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors.
Internet web links to http://www.petroleumworld.com are appreciated.
Petroleumworld welcomes your feedback and comments, share your thoughts on this article, your feedback is important to us!
Petroleumworld News 11 /12 /2018
We invite all our readers to share with us
their views and comments about this article.
Send this story to a friend Write to firstname.lastname@example.org
By using this link, you agree to allow PW
to publish your comments on our letters page.
Any question or suggestions,
please write to: email@example.com
Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8 +/ 800x600 pixels