Americas News
US Shale Threatens 2018 Rebalance - But OPEC Maintains Bullish Stance
The New Year, which up until recently was widely viewed by analysts as when supply and demand would fully return to a healthy balance, is now shaping up to be a time of strife due to the relentless U.S. shale juggernaut - at least as far as the International Energy Agency is concerned.
In its latest monthly report released Thursday, the IEA forecast that non-Organization of the Petroleum Exporting Countries (OPEC) supply including that of the U.S. will rise by 600,000 barrels per day (bpd) this year and 1.6 million bpd in 2018; it also noted that global oil supply rose 200,000 bpd in November to 97.8 million bpd, "the highest in a year, on the back of rising U.S. production."
The IEA went on to state that "Just as the OPEC oil ministers were sitting down in Vienna [on November 30, to discuss extending its output production cuts], our colleagues at the U.S. Energy Information Administration released data showing that for September U.S. crude oil output increased month-on-month by 290,000 bpd to reach 9.48 million barrels a day, the highest monthly average since April 2015 and 928,000 bpd above a year ago.
"Preliminary weekly data suggests that U.S. production increased further into early December... recently, U.S. drilling activity and well completion rates have picked up again, suggesting higher production to come in a few months… consequently, we have raised our annual growth forecast for total U.S. crude oil to 390,000 bpd this year and 870,000 bpd for 2018."
This, the agency believes, paves the way for total global supply growth possibly exceeding demand growth, with a surplus of 200,000 bpd in the first half of 2018 (although the agency concedes this could revert to a deficit of about 200,000 bpd in the second half): "A lot could change in the next few months, but it looks as if the producers' hopes for a happy New Year with de-stocking continuing into 2018 at the same 500,000 bpd pace we have seen in 2017 may not be fulfilled."
But if the U.S.'s gain is OPEC's loss, the cartel doesn't seem fazed by the prospect: while it forecast that non-OPEC production will grow by nearly 1 million bpd in 2018 (an upward revision of 120,000 bpd from its previous projection), it also sees demand growing by 1.53 million bpd next year, up slightly from last month's analysis.
This falls in line with predictions made by Bakheet Al-Rashidi, the new oil minister for Kuwait, who said that this "healthy" pace "will support oil prices and support refining margins; refining margins will be better than this year because they are linked to demand growth."
Further, OPEC believes its own production will average 33.2 million bpd in 2018, slightly above 2017 levels, and "Combined with continued efforts by OPEC and non-OPEC to support oil market stability, this should lead to a further reduction in excess global inventories, arriving at a balanced market by late 2018," it stated.
Of course, not factored into OPEC's elaborate calculations are the recent signals that Libya and Nigeria, long-time thorns in the side of the cartel who recently agreed to participate in the production cutback extension, are now planning to boost production in 2018 - which would presumably further impact OPEC's objectives for the New Year.
