Americas News
Crude Jumps 2% But Ample Supply Predicted through 2020
As has been the case in past gains, growing demand forecasts and inventory seen to be shrinking helped cause U.S. crude prices to surge 2.2 percent on Monday, with West Texas Intermediate rising $1.32 to $62.57 and Brent climbing $1.19 to $65.56.
The International Energy Agency on Monday said it expects oil demand growth to average 1.1 percent per year to 2023 and noted that the Organization of the Petroleum Exporting Countries (OPEC) would fail to significantly increase its production capacity.
Meanwhile on Monday, two people with knowledge of the matter told Bloomberg that Genscape Inc. was said to report that inventories dropped in Cushing, Oklahoma, where tanks are already at the lowest level since 2014, following 10 straight weeks of decline (600,000 barrels last week alone).
Bob Yawger, director of futures at Mizuho Securities USA Inc., said the draws will continue as long as near-term futures contracts trade higher than later ones: "Why would anybody want to auto-lose money by storing crude oil?"
But although Monday was good for crude prices, and despite comments from experts such as Pavel Molchanov, an energy research analyst at Raymond James (who stated that "The trend in global inventories shows that the market is fundamentally under-supplied and that emphatically remains the case"), the specter of full-out production on many global fronts remains a real concern.
Libya is just one example: Bloomberg points out that shipments from the holder of Africa's biggest oil reserves last month jumped to 1.19 million barrels per day, the highest since the news agency began tracking tankers from the country in July 2014, and 22 percent up from January.
Libya has also so far this year secured commitments from some of the world's biggest energy companies, including three new annual cargo-lifting contracts and a $450 million oil-field investment from Total SA.
And even though the IEA triggered crude market gains on Monday by reporting demand growth, it also warned that over the next three years, production from the U.S. alone will cover 80 percent of the world's demand growth, with contributions from Canada, Brazil, and Norway more than covering the growth.
That said, the IEA also worries that despite falling costs, additional investment will be needed to spur supply growth after 2020: "One thing hasn't changed over the past year ... upstream investment shows little sign of recovering from its plunge in 2015-2016, which raises concerns about whether adequate supply will be available to offset natural field declines and meet robust demand growth after 2020."
But given the inherent volatility of the market, it's almost impossible to predict accurately what will happen in months to come, let alone years: recently Michael O'Rourke, chief market strategist at Jones Trading, echoed the sentiments of many analysts by noting that U.S. shale could easily contribute to a new glut and drive prices below $50.
