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Page added on January 22, 2018

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Hail the Return of $100 Crude! Maybe

Consumption

A slump in new production outside the U.S. shale patch in 2019 could help to send Brent crude briefly back above $100 a barrel next year, according to London-based consultancy Energy Aspects.

The International Energy Agency also has a 100 number in its latest outlook, published Friday. While it doesn’t forecast prices and doesn’t yet look as far ahead as 2019, it sees global demand exceeding 100 million barrels a day for the first time in the fourth quarter of this year.

Oil’s slump is over — hail the return of triple-digit crude! Well, maybe, briefly.

OPEC ministers and friends meeting in Oman today to assess their output deal would be wise not to get too carried away.

The IEA, as I noted last week, is much less bullish about demand growth in the coming months than other pundits. For some, this raises the risk that the world’s most-watched forecast significantly underestimates oil use and, as a result, the speed of oil market rebalancing and the upward pressure on prices.

Broad-based economic recovery is setting the world up for demand growth of 1.7 million barrels a day in 2018, and there’s a chance that it could be as high as 2 million barrels, according to Energy Aspects. Certainly there’s a lot of expansion about — the World Bank has raised its global GDP growth forecast for this year to 3.1 percent from the 2.9 percent it projected in June. With strong economic momentum in almost every country and region, there is “no real drag on oil demand growth,” Energy Aspects said Jan. 15.

Bounding Ahead

The World Bank has raised its 2018 forecast of real global GDP growth to the highest in seven years

Source: World Bank

But there could be one in the works. Rising prices can have a chilling effect on demand growth, and benchmark crude prices have risen more than 55 percent since their rally started in June. End-user retail prices are feeling this.

U.S. gasoline and diesel are both the most expensive they have been at this time of year since 2014 and, in contrast to the normal seasonal pattern, pump prices are already rising. The same is true in Europe.

Dearer Gas

Retail gasoline prices are the highest for the time of year since 2014 and heading upwards

Sources: Bloomberg, American Automobile Association

Strong demand growth in the developed countries of North America and Europe in the first half of 2017 was “largely attributable to lower prices,” the IEA says. Drivers are unlikely to benefit from similar price moves this year.

What happens to car owners in rich nations isn’t the only source of strain on demand. Many developing countries took the opportunity of the sharp fall in prices to reduce subsidies on oil products, which could amplify the impact of higher crude on what end users pay.

And some less-developed countries are shifting to natural gas from oil. The IEA sees 540,000 barrels a day of demand for gasoil, fuel oil and crude displaced by gas in five non-OECD countries since 2014. Saudi Arabia has also cut its direct crude use for power generation by around 100,000 barrels a day in the past two years. The displacement theme will continue this year.

The draw on global stockpiles should resume in the second quarter, even amid rising OPEC output, according to Energy Aspects.

The IEA also sees a big rise in oil production this year, including “explosive growth” in the U.S. With the pickup in non-OPEC supply exceeding the increase in demand, it sees the world’s need for OPEC production falling by around 600,000 barrels a day compared with last year, to a level below last month’s output. The implication of that for prices is clear — if the IEA is right, the possibility that oil reaches $100 a barrel is remote.

Shrinking Market

The IEA sees non-OPEC supply growing more than global oil demand in 2018, leaving less room for OPEC crude

Sources: Bloomberg, International Energy Agency

Note: Change in annual average supply and demand from 2017 to 2018

Higher prices may yet clip the wings of the oil demand growth that OPEC and friends need. They should not let the sweet smell of the success they have had so far go to their heads in Oman.

–Bloomberg’s Elaine He helped with charts.

bloomberg



21 Comments on "Hail the Return of $100 Crude! Maybe"

  1. dave thompson on Mon, 22nd Jan 2018 3:10 pm 

    LOL $100 oil? All hail economic crash.

  2. kervennic on Mon, 22nd Jan 2018 4:07 pm 

    Amazing that some people get paid to bullshit so much and accumulate words in such an inarticulate manner.

    Will oil bounce back, may be, may be not. That’ s the summary. Thank you and good bye.

    The question 1 is: can oil production bounce back, than price will never go up. Production will not bounce back forever so that sooner or later price will be up a bit. But when, no one can tell.

    Question 2: can the boàuncing back be sustained. Usually not. We know already that speculating on expensive oil, above 100 dollar is short lived. At this price, an indebted economy cannot produce enough value to go on. It collapses and price goes rapidly down.

    But: an expensive oil under this value can be sustained for a while because developing countries can make more value of it than rich countries. Making new mobile phone does not add vital value and it can easily have no economical value if people decide not to buy one. Putting oil in an old pump to produce food is worth it, even it price goes up. People will pay for food if there is a shortage, and that will pay the oil.

    The idea is that price can sustainably remain between 50 and 100, while allowing for some economical improvement in a populous southern world, while crushing the growth of industrial machinery in developped economies.

    These are two worlds that can decouple.

  3. iamwhoiamifyouknowwhatimean on Mon, 22nd Jan 2018 4:15 pm 

    If the world economy needs as much help as it is getting from negative yield bonds, super low interest rate loans, QE, falsifying GDP & unemployment numbers, manipulating precious metal prices, etc. and think it can withstand $100 a barrel, they are really dreaming. A recession probably initiates not long after WTI hits $80 a barrel for a few months.

  4. Outcast_Searcher on Mon, 22nd Jan 2018 4:31 pm 

    Dave Thompson. Still ignoring recent history, eh?

  5. Mad Kat on Mon, 22nd Jan 2018 5:12 pm 

    iamwhiam…You got it in one. The price wall is fast approaching. The whole financial house of cards will come down.

  6. Davy on Mon, 22nd Jan 2018 5:40 pm 

    I am still waiting to see if the economy holds. If it does I would not rule out numbers inching up to $100 eventually depending on supply issues. I seriously doubt much more than $100 mainly because it is too far out of the economic comfort range for consumers. The global economy has already maxed out its financial repression and easing tools. A sustained high oil price will be like an added financial taper with hints of inflation. This will exacerbate stagflationary effects that are already showing themselves from a dysfunctional global economy. We already see the tantrum a little tapering causes. Anymore in this financially managed world tolerances are very tight for any significant macro-economic movements. These close tolerances include trade between nations and currency relationships. There is no decoupling anywhere anymore we are all tied into a very precarious situation.

  7. twocats on Mon, 22nd Jan 2018 6:16 pm 

    It’s hard to imagine anything slowing this freight train down. We’ve gone… what… 1 gazillion days without a 2% down day on markets? Longest bull market in universe history? Solved it.

    and its true that high prices didn’t do much damage during the 2010 to 2014 period. but that was happening into the heart of Central Bank QE free-for-all. The US stopped QE years ago and is actually letting stuff roll off the books. Europe is also cutting back on purchases. I think Japan too. Really, only China is keeping this ship floating right now. But of course, QE could be revived in an instant.

    Oil prices (and now cryptocurrencies) are the only real sources of inflation that I think really scare the CBs. Oil price goes above $80 for an extended period of time and it will grind the economy to a halt. This up-cycle is so long in the tooth its a sabertooth.

  8. dave thompson on Mon, 22nd Jan 2018 6:44 pm 

    Yes Outcast,Recent history has shown us that if you are part of the very rich and invested in the stock market, $100 oil? No problem.
    If you are struggling to put food on the table and keep a roof over your head like about %90 of Americans, $100 oil? Very quickly you can afford to live out of your car that is out of gas.

  9. Pat on Mon, 22nd Jan 2018 8:31 pm 

    what exactly to unfold as the world growth chart continues to rise as also the oil to 100$ the more rich, affordable nations will be able to continue for some time, others slowly see their economys, fuel rates go through the roof. Eventually the breaking point will arrive for global oil prices breaking all time highs of 150$ and its the death of whole world, total collapse, choas, depression than any seen before, oil production will never recover back. the totak collapse, choas is not far will happen by end of year 2018. god bless. prepare………

  10. JuanP on Mon, 22nd Jan 2018 8:48 pm 

    I think it is quite possible that oil will go over $100 in the future for a while. This would lead to some economic readjustments and probably wouldn’t last very long, but it could last months or even years. The global financial system is so disconnected from reality that I think almost anything is possible for a while. It makes no difference in the long run, though, this sucker is going down sooner or later and the longer we put it off the worse the crisis will be. The bigger the bubble the louder the pop and this is the biggest bubble EVER. And, like I always say I don’t like using that word but in this case it is the correct one.

  11. Outcast_Searcher on Tue, 23rd Jan 2018 12:11 am 

    Dave Thompson, making stuff up doesn’t help your case. With median household incomes north of $50,000, the average American isn’t close to “struggling” to put food on the table, much less 90%.

    By the way, recent history — 2010 to 2014, showed that nearly $100 oil is no big deal for the US or the global economy. That’s the history you’re ignoring (on top of making up figures like 90% of Americans are poor and struggling).

    And for the bottom 10%, it’s not like $1 trillion for about 100 federal anti-poverty programs, PLUS all the state and local efforts don’t help the poor with basics like food.

    Stop pretending 5% or so actually struggling to get by is really 90%.

    Are you really going to say when the AVERAGE new car purchase transaction is about $33,000 that the average American struggles to put food on the table, for example?

    And average is at the 50% line, not 90%.

  12. Davy on Tue, 23rd Jan 2018 4:59 am 

    “Dave Thompson, making stuff up doesn’t help your case. With median household incomes north of $50,000, the average American isn’t close to “struggling” to put food on the table, much less 90%.”

    OS, I think there are lots of poor people struggling. The food bank is packed near my farm with poor people needing food. I live in the Ozarks which is a poor region compared to the wealthy urban areas. It is not as bad as the anti-Americans like mad kat say. None of these people are starving but they do need some help. It is likely not 90% either. Yes, OS, we have a high average income but this is in a country with a high Gini coefficient. Lots of people doing well and lots not. That is America and this has been our country most of our history. We just has a few decades in the 20th century were that changed drastically. This is a large country of many classes. We are 3rd world and 1st world and everything in between. This has good and bad points.

    “By the way, recent history — 2010 to 2014, showed that nearly $100 oil is no big deal for the US or the global economy.”
    No problem??? I don’t think it was great for many people especially lower income people. It actually was disruptive for some and highly lucrative to others in the oil patch region. That was the shale gold rush time for many. The goldilocks range appears to be $60-$80 IMO.

    “Stop pretending 5% or so actually struggling to get by is really 90%.”
    I would say 30% is a better number than 5% with the 1% in extreme difficulty. There are many homeless or people living off the kindness of others. These are hard times in the US for many. Let’s be honest where honesty is due.

  13. Davy on Tue, 23rd Jan 2018 5:48 am 

    “U.S. On Track To Unseat Saudi Arabia As No.2 Oil Producer In the World”
    https://tinyurl.com/y7glprlz

    “This year promises to be a record-setting one for the US,” the IEA wrote in its monthly market report. “Relentless growth should see the US hit historic highs above 10 million barrels per day, overtaking Saudi Arabia and rivaling Russia during the course of 2018 – provided OPEC/non-OPEC restraints remain in place.”

    “US growth in 2017 beat all expectations … as the shale industry bounced back, profiting from cost cuts, (and) stepped up drilling activity,” the IEA added. “Explosive growth in the US and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico. The big 2018 supply story is unfolding fast in the Americas.”

    “This year, U.S. crude oil production is seen averaging 10.3 million bpd in 2018, beating a record dating back to 1970. For 2019, the EIA expects U.S. production to increase to an average of 10.8 million bpd, and to surpass 11 million bpd in November next year.”

  14. joe on Tue, 23rd Jan 2018 6:06 am 

    https://www.ft.com/content/39b6f65d-82b5-3633-8cb9-0898aca1d5c8

    Tight oil lives on cheap money. Profits are achieved on low cost of capital. If that equation changes, output will be affected bigly.

  15. Boat on Tue, 23rd Jan 2018 7:37 am 

    The cut in oil output by Russia/OPEC has resulted in a $20 per barrel price jump. Interest rates are chump change as a cost compared to a gain like that. Land where there is oil and the price for a fracking crew are whats jumping higher in the US

  16. dave thompson on Tue, 23rd Jan 2018 8:32 am 

    Outcast glad to to see you paying attention. That 5% figure where did that come from? Try more like 60% at least. Probably even up to 80% are struggling in one way or another. here is a break down. https://youtu.be/QPKKQnijnsM

  17. Sissyfuss on Tue, 23rd Jan 2018 9:52 am 

    The one great occurrence that can save our functioning environment is the massive meltdown of the global economic miasma. You cannot root for this inevitability, you can only wonder at the horror of it and its accompanying depopulation and madness. The dark clouds gathering on the horizon are filled with CO2 and Methane that are growing exponential in their destructive power. A runaway train without a brakeman.

  18. Boat on Tue, 23rd Jan 2018 11:48 am 

    Sissfuss

    Did you change your mind? I thought it was already to late for the environment. Now you say we can save what? How many die in this saving collaspe. Any nukes as we travel down this rabbit hole? Have you written a book.

  19. Sissyfuss on Tue, 23rd Jan 2018 12:37 pm 

    “Too late”” my illiterate sinking dinghy. I can’t predict if anything will survive our collective insanity. Perhaps in a hundred million years Gaia will reboot and a true homo sapien will emerge to live in sustainability. I know with certainty that we are in overshoot and will be crammed into a bottleneck that may or may not extinguish humanity. Stay “tooned” oh unenlightened one.

  20. Plantagenet on Tue, 23rd Jan 2018 5:27 pm 

    A production decline out side the US starting in 2018? Hmmmm—I think that means the entire world has peaked except the US.

    Cheers!

  21. DMyers on Tue, 23rd Jan 2018 7:21 pm 

    Barrel of oil in 1970: $3.60
    That’s about $22.00 in 2017 dollars.

    The $100 barrel is about 5X in 2016 dollars.
    nominal increase (3.6 to 100) is about 28 times

    Pack of MB Lights in 1970: $.30
    Current price is about $5.00. About 16X nominal

    That’s the treatment this subject needs primarily. The $100 barrel should be studied in relation to both real and nominal price increases for other commodities, goods and services.

    By example, the average car price in 1967 was $3215 going to $25,449 in 2016. That’s about an 8X nominal increase. The 1967 price in 2016 dollars was $22,807. That’s a difference of only $2642 from the 2016 price, a 12% increase.

    All to say, these prices over time are confusing. Before asserting that $100 a barrel is not cheap, that number must be put into inflationary context and perspective.

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