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Page added on February 15, 2019

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It’s All Going Wrong Again for OPEC

Production

Even as oil producing states in OPEC and beyond begin implementing the output cuts they agreed in December, the world’s need for their crude is shrinking further, suggesting that they will need to extend the deal through the second half of the year.

The latest forecasts from supply-and-demand studies of the oil industry’s most-watched organizations – the International Energy Agency,  the U.S. Energy Information Administration, and the Organization of Petroleum Exporting Countries itself – show the need for OPEC crude diminishing as demand forecasts are trimmed and U.S. supply outlooks are increased.

The industry’s three main agencies are unanimous in reducing their assessments of the volume of oil the world will need from OPEC countries this year compared with what they were forecasting last month. The average level of the reduction from the January forecast is 300,000 barrels a day, that’s about the combined production of OPEC’s two smallest members Equatorial Guinea and Gabon.

Shrinking Market

Assessments of the world’s need for OPEC crude in 2019 have been cut by around 300,000 barrels a day from last month’s forecasts

Source: Bloomberg, IEA, EIA, OPEC

Note: Month on month change in the world’s need for OPEC crude, calculated as global demand minus non-OPEC supply, minus OPEC NGLs production Note: The big drops in January reflect Qatar’s departure from OPEC

Of greater concern for producers, two of the three agencies see the world needing less OPEC crude in the second half of the year than the first. Only the IEA currently sees the demand increasing as the year progresses. The differences aren’t big, the EIA and OPEC see the need for OPEC oil falling by another 50,000-60,000 barrels a day in the second half compared with the first. The IEA sees a similar sized shift in the opposite direction. None of the agencies sees the need for the group’s crude rising enough to allow them to end their current supply management deal.

What has driven the fall in the need for OPEC crude? A mixture of lower demand growth projections and higher non-OPEC supply, in particular from the U.S.

Demand Growth Trimmed

Oil demand growth forecasts for 2019 have been trimmed by all three agencies

Source: Bloomberg, IEA, EIA, OPEC

Note: Year-on-year change in global oil demand: 2019 vs 2018

The IEA’s Executive Director Fatih Birol said in a Bloomberg television interview Tuesday that it’s too early to make a definite judgment whether a slower global economy means the agency should revise its oil demand growth forecasts lower. Nonetheless, the following morning it trimmed that forecast by 60,000 barrels a day. It now sees global oil demand rising by 1.37 million barrels a day on average in 2019 compared with 2018. That is the smallest increase it has forecast since October.

Non-OPEC Supply

All three agencies raised their forecasts of non-OPEC oil output growth in 2019

Source: Bloomberg, IEA, EIA, OPEC

Note: Year-on-year change in non-OPEC production: 2019 vs 2018

OPEC producers can’t expect any help from their non-OPEC counterparts — at least not from those outside the group of ten countries that have joined them in the attempt to rebalance oil supply and demand. The EIA raised its forecast of 2019 U.S. oil production by 340,000 barrels a day, with more than a third of that coming from the Gulf of Mexico and the increase heavily skewed to the second half of the year.

Sorry OPEC

The EIA raised its forecast of 2019 U.S. oil production by 340,000 barrels a day

Source: Bloomberg, EIA

The IEA and OPEC may have some catching up to do on their U.S. production outlooks. The IEA increased its forecast of 2019 U.S. oil production by 250,000 barrels a day compared with what it foresaw a month ago. OPEC also raised its forecast, but by a much smaller 94,000 barrels. If those two agencies follow the leads of the EIA, it will undermine further the need for OPEC oil in next month’s forecasts.

An OPEC+ output deal that was originally meant to rebalance oil supply and demand in six months is now set to last five times as long as initially planned. The dwindling demand for OPEC oil seen by the three major forecasting agencies suggests it may need to be extended yet again.

bloomberg



7 Comments on "It’s All Going Wrong Again for OPEC"

  1. Cloggie on Sat, 16th Feb 2019 12:53 am 

    Not a hint of impending oil shortages, the predictions of our resident neo-bolshevik board loon notwithstanding.

  2. Davy on Sat, 16th Feb 2019 5:00 am 

    I posted this reference yesterday and it appears more relevant here:

    “Fifty Shades Of Shale Oil”
    https://tinyurl.com/y6y9wo4l
    https://tinyurl.com/y5xpsrko
    https://tinyurl.com/y4lfqp42

    “Considering that the majority of U.S. tight oil production growth is generated by a single field, the Permian, changes in the growth outlook of this basin have major implications as to the evolution of global oil prices over the short, medium and long term. Its important to keep in mind that the Permian oil field, despite its large scope, is bound to flatten, peak and decline at some point. While forecasters differ as to the exact year when the Permian oil production will flatten, the majority agree that a slowdown in Permian oil production growth will take place in the early 2020s.”

    “There are many factors that can accelerate or delay the projected flattening phase, but there is no doubt that sooner or later Permian oil production will flatten. An eventual plateau in Permian oil supply effectively translates into a flattening of non-OPEC global oil supply, the importance of this event can’t be overstated. The year the Permian flattens is the year OPEC will regain control of the market, this seminal event will have major implications on long term oil prices.”

    “The U.S. tight oil story is far more complex than meets the eye, and the oil market, like any market, is prone to the appeal of simple narratives and false conclusions. Those willing to drill behind the headlines stand to capitalize on the treasures buried in the details.”

  3. Davy on Sat, 16th Feb 2019 6:05 am 

    “IMF Discreetly Preps Massive Aid Package For “Day After” Maduro’s Fall”
    https://tinyurl.com/y2mwt2bv

    “The International Monetary Fund is reportedly making plans for the “day after” embattled President Nicolas Maduro’s fall, according to Bloomberg. Though there’s been little momentum in military defections following US-backed opposition leader Juan Guaido’s offer of amnesty to any army officer that switches loyalties, Washington sanctions have effectively strangled state-owned PDVSA’s access to global markets. News of IMF maneuvering also comes amidst fresh reports the US is amassing aircraft, troops and armored vehicles on the Venezuelan border under the pretext of getting humanitarian aid into the country. The only significant cash flow that remains after the oil sanctions is through India, Venezuela’s second-biggest oil market after the United States, which still recognizes the Maduro government, and is now reportedly seeking to avoid purchases through US banks and even financial institutions with a heavy US presence. According to a Reuters report on Friday, “India has asked one buyer of Venezuelan oil to consider paying the South American nation’s national oil company PDVSA in a way that avoids the U.S. financial system, an Indian government source said, after Washington imposed fresh sanctions on Venezuela last month. If oil buyers pay PDVSA through American institutions, US authorities can seize the funds. But the IMF reportedly sees cash dwindling from oil sales at such a rapid pace that Maduro can’t possibly hold on, even with the staying power of his loyal armed forces. This also comes as the White House mulls a possible next step of blocking foreign entities all together from dealing with the PDVSA. Citing an anonymous official due to the sensitivity of the matter, Bloomberg reports the IMF is planning for a near-term Maduro exit by discreetly preparing a massive financial aid package to rescue the nosediving economy, for years choked by US-led sanctions and corrupt socialist leadership, following transition of power.”

    “And this will come, Forbes noted, via the IMF and World Bank, which “will require massive structural reforms, including a return of foreign investment and foreign companies into the Venezuelan oil market.” This followed after Bloomberg reported in November of last year that Venezuela hadn’t reported GDP and inflation data since 2016, for which its central bank prepared a report sent to the IMF in accord with a Nov. 30 deadline while “hoping to avoid sanctions that included the loss of voting rights or a potential expulsion from the lender.” Bloomberg also noted at that time that the IMF was already eyeing drastic action: “Expulsion from the fund would cause Venezuela to lose access to what little remaining funds it has associated with the lender, but more importantly, it could trigger a cross-default on some sovereign bonds.”

  4. Robert Inget on Sat, 16th Feb 2019 2:03 pm 

    TOO MANY ENDLESS RELIGIOUS WARS; Yemen, Syria, Iran, even Qatar come to mind. All depleted resources.

    All out pumping ‘Saudi Coalition’ resources are forcing KSA to seek crude elsewhere.

    Deepwater GOM, Venezuela, Mexico, NA natural gas come to mind.

  5. Anonymouse on Sat, 16th Feb 2019 3:30 pm 

    Bobretard, none of the conflicts you tick off could be characterized as ‘Religious wars’. Unless of course, you mean the zionsits and their radicalized xtian allies that planned and provide material support for those conflicts. Well, maybe they are religious wars then. Jews and xtians do take their religions commandants to maximize profits and building swords instead of plowswords seriously enough.

    The rest of your comment, makes even less than your opening line….somehow.

  6. Pete Bauer on Sat, 16th Feb 2019 7:58 pm 

    67% of american oil comes from shale and the well productivity is going down which means more wells has to be dug to produce the same amount of oil.

    So opec is waiting for the day the shale to go down. And then they will start their game.

    At the same time, electric vehicle sales are increasing rapidly.

    And oil consumption in power generation, heating is also declining as alternative fuel sources are replacing oil.

    If the shale goes down, will the electric vehicles rise to the challenge.

    BYD sold 28,000 + plugin vehicles in China in 2019-01 which is triple the # YoY.

    https://cleantechnica.com/2019/02/15/byd-sold-over-28000-evs-in-january-will-china-see-over-50-sales-growth-again-this-year/

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