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Page added on March 18, 2018

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Oil Price Outlook: Can OPEC Stick To The Deal?

Consumption

As demand remains stable, it is clear that OPEC and its allies’ ability to adhere to the agreed upon output levels, combined with the pace of U.S. shale production growth will be the key determining factors for prices over the next two years.

Currently, OPEC has extended the production deal agreed to in 2016 through the end of 2018 and had even added provisions for dealing with strong growth out of Nigeria or Libya. However, as the organization’s June 22 meeting is rapidly approaching, the risk is rising that the group decides to scale back, either officially or unofficially, its commitment to managing production in the face of strong growth from the United States.

Monthly data from the U.S. Energy Information Administration indicates that U.S. producers have passed the 10 million barrels per day (MMbbl/d) mark with weekly supply and rig data suggesting the upward trend has likely continued.

With this latest iteration of our global outlook we have run a multitude of scenarios and combined the most likely elements into our reference case. In a clear indication that risks are skewed to the downside, Scenario 1 outlines a path to a bull case for prices while Scenario 2, Scenario 3, and Scenario 4 are all potential routes to lower prices.

Reference

Stratas Advisors’ reference case for crude prices has the OPEC deal ending at year-2018, as is currently scheduled. We expect minor slippage from deal participants beginning as early as mid-2018 but no more slippage than in any scenario outside total dissolution of the deal (Scenario 4).

Despite recent high prices and growing U.S. production, OPEC members have maintained that it is too soon to decide whether to revise the deal and are likely to maintain official commitment through the end of the year. We currently expect that OPEC will begin discussing, and more importantly, publicly divulging what an exit strategy will look like starting mid-year.

In this scenario we expect Brent to average $65.02/bbl in 2018, increasing to $66.19/bbl in 2019.

Bull Case

Risks are skewed to the downside, and for this reason, Stratas Advisors sees three possible scenarios in which prices are below our reference case but only one likely route for prices above our reference case. Scenario 1, our bull case, is reliant on a low-supply world, especially in 2018, and only partially dependent on elevated demand.

Bear Cases

Stratas Advisors sees three potential paths to a lower price environment driven by both oversupply and mediocre demand growth. In two of these three scenarios OPEC and its allies dissolve their production agreement six months early while in the final scenario the deal holds through 2018, but non-OPEC supply grows.

Oil Gas Investor



15 Comments on "Oil Price Outlook: Can OPEC Stick To The Deal?"

  1. Boat on Sun, 18th Mar 2018 8:08 pm 

    OPEC/Russia got lucky with the Venz collapse production. Even with over 2 mbpd cut them friggen Texas frackers keep adding over 125,000 per month to compensate. The exceptionalists.

  2. MASTERMIND on Sun, 18th Mar 2018 8:14 pm 

    Boat

    It will take 2,500 new wells a year just to sustain output of 1 million barrels a day in
    North Dakota’s Bakken shale, according to the Paris-based International Energy Agency. Iraq could do the same with 60. Ultra-light oil makes poor-quality gasoline that has to be
    put through an additional process (and cost) called catalytic reforming that boosts octane
    to sales specifications. And most crucial is that this light oil lacks the middle distillates needed to produce diesel and jet fuel. Those are the three biggest refined
    product markets so ultra-light oil has a lot going against it.

    Right now, the main approach is to blend the ultra-light with heavier grades of oil to
    create a mixture that can be put into refineries. This has created high demand for heavier oil (20-30 API gravity). The main sources for the U.S. are deep-water Gulf of Mexico, Mexico, Venezuela and Canada. Much of this heavy oil has problems of its own for refiners especially the syn-crude from Canada and Venezuela that contains large volumes of bitumen that requires a special kind of refinery (“cokers”) that can deal with the carbon and sell it as petroleum coke. Most of these refineries are in the Midwest (Chicago area mostly).

    The deep water GOM crude contains considerable sulphur that must be removed before refining further. As you can see, it is a complex problem. It reflects the fundamental premise of Peak Oil—namely, that we have run out of cheap oil.

    https://www.bloomberg.com/news/articles/2014-02-27/dream-of-u-s-oil-independence-slams-
    against-shale-costs

    https://imgur.com/a/t7ulB

  3. twocats on Sun, 18th Mar 2018 8:25 pm 

    Except the eagle ford friggen texas frackers – those guys suck. And for some dumbruckin reason those a-hole Permian texas frackers stopped uppitying their initial well quality way back in 2000 dickity 16. so blum garnit those guys better ass-in-gear or they’re gonna be red-queening the f outta this shit in the permian too!

    see boat, you’re not the only one who can explain this shit in texan.

  4. Boat on Sun, 18th Mar 2018 8:50 pm 

    Mm

    I have spent many hrs over the last 5 years reading anything I can get my hands on about oil. Your copied post is semi correct. 390 completions was last months tally. That was 25 more than last month. That 25 completions is approx 133 tbpd. There are also several thousand drilled but uncompleted Wells that is still growing at over 135 per month.
    When I hear of drilled wells or rig counts I know they full of shit. Peer reviewed shyt. It’s all about well completions and the bottle necks preventing more. This is the story of tight oil. If you have 2/3 of a brain you can decifer most of this in the monthly drilling report the eia puts out. Read and learn college boy. PS just a high school boy. I can read data where you educated punks can’t.

  5. MASTERMIND on Sun, 18th Mar 2018 9:14 pm 

    Boat

    No need to hurl insults boat. I am sorry shale is junk oil. And its not going to save us from all the worlds declining conventional legacy fields. Peer reviewed or not..We have used more oil than we have discovered for 34 years in a row. And last year we discovered the least amount ever while using the largest amount ever. And any society,person, or business that burns through their assets at ten times their replacements will be go bankrupt eventually. That is just math.

    https://www.cnbc.com/2017/05/01/us-shale-cannot-meet-the-worlds-growing-oil-demand-chevron-ceo-warns.html

    2020s To Be A Decade of Disorder For Oil
    https://oilprice.com/Energy/Energy-General/2020s-To-Be-A-Decade-of-Disorder-For-Oil.html

    Sucks you might never get laid before society collapses! LOL

  6. Boat on Sun, 18th Mar 2018 9:20 pm 

    Teocats,mm,amouse

    Do you understand what rigor is. It’s not what you know but lesrning how to learn. Take the challenge and learn this report. Use some thought, discuss ideas and thoughts. Then and only then can you talk real shyt. Not the blog shyt. Take me on peckerheads.

  7. Boat on Sun, 18th Mar 2018 9:37 pm 

    Mm

    Hey kid, you started the insults. I prefer data over many links with competing outcomes by our many peer reviewed studies. The interesting thing about reserves is how they keep going up for the most part while discovery slows. The Permian I’d a great example. An area drilled for almost 100 years that just added 10’s of billions of future production. Who peer reviewed that shyt?

  8. Boat on Sun, 18th Mar 2018 9:47 pm 

    https://www.eia.gov/petroleum/drilling/?src=home-b1#tabs-summary-1

    Find the Excell chart with wells drilled and completions. After a few months you can learn the heart beat of American drilling.

  9. MASTERMIND on Mon, 19th Mar 2018 12:34 am 

    Boat

    Declining conventional oil will be the final nail in the coffin for the global economy. Because they can’t do anything about it.
    https://imgur.com/a/6dEDt

    IEA Chief warns of world oil shortages by 2020 as discoveries fall to record lows
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Saudi Aramco CEO sees oil shortage coming as investments, oil discoveries drop
    https://www.reuters.com/article/us-aramco-oil/aramco-ceo-sees-oil-supply-shortage-as-investments-discoveries-drop-idUSKBN19V0KR

    Go back to the POB with dipshit Dennis…

  10. JuanP on Mon, 19th Mar 2018 10:25 am 

    Viva Putin! Viva Rusia!

  11. MASTERMIND on Mon, 19th Mar 2018 12:58 pm 

    JuanP

    Viva ballot stuffing and election rigging! Viva the world richest man! While 90 percent of his countries people are dirt poor!

  12. Sissyfuss on Mon, 19th Mar 2018 6:05 pm 

    All right fmr boatard, lemme see if I got this. 390 completions was last month’s tally. That was 25 more than likely last month. Which was 390. Which is 25 more. Ad infinitum. And only a high school education. I’m impressed, steaming boatload.

  13. Boat on Mon, 19th Mar 2018 7:08 pm 

    Sisfuss

    You got it wrong. You learned to use pretty words and lay them out nice but lack comprehension. If completions went up up 25 to 390 then the previous month had to be 365.

  14. Sissyfuss on Mon, 19th Mar 2018 8:44 pm 

    Bipolar, I was a math wiz before I discovered sports and women. You said 390 was last months tally which is 25 more than last months. I guess those shrooms you ingested were some bitching stuff. Party on dude.

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