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Page added on January 20, 2018

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IEA prediction of explosive U.S. oil growth stokes OPEC fears

Production

OPEC’s fear that another surge of shale oil could neutralize its production cuts might be coming true.

U.S. oil output is set for “ explosive” growth this year as prices rally, the International Energy Agency said on Friday. That was just one of a chorus of voices from Goldman Sachs group Inc. to OPEC itself warning of a looming output surge reminiscent of the “heady days” of the first shale boom.

As OPEC and allies including Russia gather in Oman this weekend, achievements including a three-year high in oil prices and rapidly dwindling supply glut may be overshadowed by the risk of becoming victims of their own success.

“The big 2018 supply story is unfolding fast in the Americas” the IEA said in its monthly report. “Explosive growth in the U.S. and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico.”

Even with the moderate price response to the OPEC-led cuts during most of 2017, rival suppliers still managed to bounce back with output growth of 700,000 bpd, the IEA said. As producers react to the recent surge in Brent crude above $70/bbl, the agency expects non-OPEC supply to expand by 1.7 MMbpd this year, the biggest jump since the peak of the shale boom.

That would deliver an unsatisfying outcome for OPEC and its allies in 2018. Rival suppliers would be handed the entire 1.3 MMbpd expansion in the global oil market this year, and U.S. crude output could overtake that of Saudi Arabia and even get close to Russia, IEA data show. To make matters worse, another year of production cuts would have little effect on oil inventories — which the agency says are still 90 MMbbl above OPEC’s target.

Venezuelan Suffering

While the U.S. gains, there are others that are still suffering. The IEA expects Venezuela’s troubles to worsen after its 2017 production fell to the lowest in nearly 30 years.

“Given Venezuela’s astonishing debt and deteriorating oil network, it is possible that declines this year will be even steeper than the 270,000 bbl a day in 2017,” the report said. Yet, the IEA doesn’t see a “clear sign yet of OPEC turning up the taps to cool down oil’s rally” or “compensate for a precipitous drop in supply from Venezuela.”

OPEC and its partners will meet in Oman over the next two days to review their strategy for clearing the global oil glut. Ministers from the United Arab Emirates, Iraq and Kuwait have said the deal needs to continue. Russia’s Energy Minister Alexander Novak said talks this weekend could include mechanisms for gradually exiting the supply cuts after the agreement concludes at the end of 2018, while also reaffirming its commitment to the agreement.

For now, OPEC’s own analysis of the oil market isn’t flashing any warning signs. The group predicts stronger growth in demand and a weaker recovery in rival supplies than the IEA, implying a steady drop in inventories through the year.

“We see the IEA’s assessment as more realistic than OPEC’s,” analysts at Commerzbank said in a note. “OPEC’s assumption of non-OPEC supply is far too low.”

World Oil



15 Comments on "IEA prediction of explosive U.S. oil growth stokes OPEC fears"

  1. Antius on Sat, 20th Jan 2018 2:56 pm 

    I wonder if IEA production estimates account for the bankruptcies that will occur when the US raises interest rates? Production estimates like this tend to assume that everything else stays the same.

  2. Mr. Pockets on Sun, 21st Jan 2018 2:36 am 

    Need an updated chart for average extraction cost these days. I take it Kopitz’ Douglas-Westwood report from 5 years ago that frackers still need $110 oil to make a real profit no longer applies?

  3. peakyeast on Sun, 21st Jan 2018 6:49 am 

    @antius: In another thread some argued that interest rates wont rise much due to the high debt of the USA. It was claimed that the US could not pay the interest if it rose to just 5%.

  4. Antius on Sun, 21st Jan 2018 8:18 am 

    ..It’s beginning…

    https://www.zerohedge.com/news/2018-01-20/what-will-rising-mortgage-rates-do-housing-bubble-2

  5. "Lucifer" on Sun, 21st Jan 2018 8:51 am 

    Oil, oil everywhere but not for that much longer. So use it wisely people while you still can, but somehow i doubt you will listen to me. Be warned the scorched earth is getting closer.

  6. Pat on Sun, 21st Jan 2018 9:30 am 

    “We see the IEA’s assessment as more realistic than OPEC’s,” analysts at Commerzbank said in a note. “OPEC’s assumption of non-OPEC supply is far too low.” same fiat economy BAU bullshit. the fact is the oil is becoming scarcer and scarcer ever. the shale oil is just ridiculous, junk and with rising interest rates shale oil will dwindle to nothing. Already with the current supply theres huge exponential demand and world will have oil crisis of shortages in 2018. prepare……………..

  7. Boat on Sun, 21st Jan 2018 10:54 am 

    Pat,

    World demand of 1.3 – 1.5 mbpd is not huge or exponential, it’s normal/ average.

  8. rockman on Sun, 21st Jan 2018 12:03 pm 

    “I wonder if IEA production estimates account for the bankruptcies that will occur when the US raises interest rates?” And once more the need to explain that bankruptcies (almost exclusively Chapter 11 filings) INCREASES the capabilities of companies to EXPAND drilling operations. They represent an industry IMPROVEMENT. For the shales plays as well as conventional projects. Chapter 11 filings are known as “reorganizations”. Which is just a nice way of saying lenders (especially bond holders) and service companies to whom the oil company owes money will get f*cked. $BILLIONS in debt and interest payments will be eliminated from the oil companys’ books. Which then not only frees up cash flow for drilling projects but also provides the companies with new credit lines. Which allows even more opportunities given the significant reduction in drilling and frac’ng costs.

    As far as raising bank interest rates that has no effect on the current debt of the oil companies: those rate are fixed. Which wouldn’t be much of a problem for most companies any way: the vast majority of existing debt is in the form of bonds which have a fixed rate and maturity date.

    One of the best real examples of what the Rockman just explained is Halcon. It had sunk its ass deep in debt trying to make the Deep Marine Tuscaloosa shale a commercial play. By filing Chapter 11 the reorganization transferred 96% of the company’s stock to a committee made of the debt owners and the remaining stock in the hands of the original shareholders. But the corporation, Halcon, came out of the bankruptcy in great shape: eliminated $BILLIONS debt, reduced interest payments freeing up hundreds of $millions in fee cash flow and earned it a new $600 million reserve based credit line. Which has allowed Halcon to become a player in the new how shale play in the Permian Basin. The Chapter 11 filing was a huge loss for the original shareholders. But not to the Halcon company. Chapter 11 bankruptcy was the “Mother of All Get Out of Jail Free” cards. LOL

    Chapter 11 bankruptcy fillings are not only an indication that an oil company is in financial trouble but also the pathway to renewed financial well being. IOW C11 filings indicate an improvement in the industry…not a downturn as some misinterpret.

  9. Antius on Sun, 21st Jan 2018 12:42 pm 

    “And once more the need to explain that bankruptcies (almost exclusively Chapter 11 filings) INCREASES the capabilities of companies to EXPAND drilling operations.”

    Thanks Rockman. This illustrates what a ridiculous world we live in! Shareholders can get screwed and its actually good for business!

  10. rockman on Sun, 21st Jan 2018 10:41 pm 

    Antius – Not sure if one can say they are being screwed by the bankruptcy law. They were already screwed by owning stock in a failed company. I’ve finally realized how many folks don’t understand the govt’s goal in the way it designed the bankruptcy regulations. It wasn’t primarily to protect the shareholders or the debt owners. It was to protect workers and their jobs. IOW to keep the corporation in business. The history of our bankruptcy laws is very complex and has been modified numerous times. As recently as 2005.

    But what most people think they understand about filing bankruptcy has to do with personal filings and not corporate filings. They exist in two entirely different universes.

  11. MASTERMIND on Sun, 21st Jan 2018 10:58 pm 

    The IEA is grossly overestimating shale growth

    https://oilprice.com/Energy/Oil-Prices/The-IEA-Is-Grossly-Overestimating-Shale-Growth.html

  12. mark on Mon, 22nd Jan 2018 5:30 pm 

    Even if this “explosive growth” occurs. will it make up for the depletion of conventional oil production? and supply increased demand also? I’m skeptical.

  13. Anonymous on Wed, 24th Jan 2018 10:02 am 

    US oil production in OCT2017 of 9.637 MM bopd broke the record from the last boom (from AP2015 of 9.626 MM).

    We are not that far away from breaking the all time peak of 10.044, set in NOV1970.

    https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=m

    The EIA STEO predicts we break the record in FEB2018 (reported a couple months later as usual from data collection lag). However, it could happen even sooner. Even small chance it has happened already in 2017, but we are just waiting for the data.

    The reason for the confidence is that the OCT2017 number had 0.24 MM bopd from the GOM that was offline for hurricane reasons. Add that back and we are at 9.877. With production itself growing at ~0.1 MM bopd per month (2014 boom level growth), you can extrapolate DEC2017 as the record month.

    Of course data can vary and also winter impacts ND. So no guarantee. But it looks like a record is close. Early 2018 or perhaps even late 2017 (NOV or DEC, still not reported.)

    What will the reaction by peakers be when we hit that record? Denial? Sadness? Or letting events change their beliefs?

  14. Davy on Wed, 24th Jan 2018 11:38 am 

    “What will the reaction by peakers be when we hit that record? Denial? Sadness? Or letting events change their beliefs?”

    Nony, I am happy to have a few more years. With society so invested in oil still this is good news. It is not so good for a cleaner world. Nony, this is not about winning or losing over production figures. this is about survival. IMA, peak oil dynamics are alive and well and should be respected. There is lots more to it than reserves and production alone. The economy is critical and that is yet a big unknown going forward.

  15. GregT on Wed, 24th Jan 2018 11:46 am 

    “The economy is critical and that is yet a big unknown going forward.”

    So is a healthy natural environment, without which there will be no economy, and quite possibly, no humans.

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