New Year Will See Rising Geopolitical Tension and U.S. as Solitary Crude Victor: Croft

by Ship & Bunker News Team
Monday December 18, 2017

The New Year promises to be rife with worsening geopolitical tension as well as trouble in relatively benign regions such as Canada: that was the contention of a respected analyst on Monday, who also suggested that the only clear winner in the oil industry for 2018 will be, unsurprisingly, U.S. shale.

The forecast comes on the heels of an Energy Information Administration projection on Monday that crude production from seven major American shale regions is set to grow by 94,000 barrels per day (bpd) in January, with total output topping 6.4 million bpd.

Helima Croft, global head of commodity strategy at RBC Capital Markets, speculated that U.S. production "is going to come back in 2018" but that its impact "might be offset by some geopolitical story."

As an example, she said the U.S./Iran relationship could become more confrontational than it already is in 2018 if the sanctions against the Islamic republic are brought back, and that this "could tighten the market."

Another example is Venezuela: Croft said separately in a note that oil production in the Bolivian republic is set to "plunge" in 2018, and that "given the severity of the crisis, we think market participants would be unwise to assume that Venezuelan production losses will simply mirror the several hundred-thousand barrels per day losses seen in 2014."

Instead, Croft thinks the production losses could be at least several hundred-thousand barrels per day higher and may even approach the levels achieved during the Venezuelan oil strike in 2002.

Problems of a different kind promise to give Canadian producers headaches in the New Year, although it's unclear to what extent they will impact the world market: Reuters reports that pipeline and rail capacity in that country is rapidly filling up, which in turn is driving prices to four year lows (less than $30 per barrel) and increasing the risk of companies having to sell cheaply until at least late 2019.

The volume of crude in storage has hit record levels in western Canada, causing Mark Oberstoetter, analyst for Wood Mackenzie, to state, "We have a build-up of supply and that's only going to get worse next year; we are adding more and more pressure into a constrained export system."

Canada's oil sands output is forecast to climb by 315,000 bpd next year and 180,000 bpd in 2019 to 3.2 million bpd, according to RBC Capital Markets.

Croft distinguished herself last month by being the solitary member of the analytical community to raise the matter of potential cutback cheats while her colleagues hailed Libya and Nigeria for agreeing to join the extended Organization of the Petroleum Exporting Countries output cutbacks.