Crude: Speedy balance

October 10, 2017 08:55 AM
Daily Energy Market Analysis

Do they see what I see? OPEC’s Secretary General Mohammad Barkindo is telling us that the global oil market is rebalancing fast as the glut of refined products is gone as he and OPEC take a victory lap ahead of their November OPEC meeting. The strongest global demand growth we have seen in at least the last two years, if not longer, gets some of the credit it appears that OPEC sees the glut of oil almost gone. At the same time, OPEC is calling on shale oil producers to help push prices even higher and complete one of the greatest oil and product supply drains in recorded history.

Barkindo was clear. He said that "There is unmistakable evidence that the market is rebalancing. The process of global destocking continues, both onshore and offshore with positive developments in recent months showing not only a quickening of the process but a massive drainage of oil tanks across all regions."  He also pointed out that the growth in U.S. shale oil output had slowed compared to the first half of 2017 and growth in global demand may show further upward revisions, giving the supply cut effort tailwind, according to Reuters.

OPEC put OECD oil stocks, as of August, had fallen to 170 million barrels above the five-year average, down from 340 million barrels in January. Barkindo said in the speech that 145 million barrels of the remaining 170 million-barrel surplus were crude, but inventories of refined products were approaching the desired level. "Just a mere 25 million barrels are products, almost converging with the five-year average."

The Energy Report has been reporting on this and we expected it. We never doubted OPEC’s resolve to reduce global supply and we do not doubt that they will extend cuts at their next meeting. We also predict that Libya and Nigeria will agree to a future production cap.

OPEC is also looking at shale producers to join into their little production cut conspiracy.  Barkindo, in a speech to shale oil producers, said “We urge our friends, in the shale basins of North America to take this shared responsibility with all seriousness it deserves, as one of the key lessons learned from the current unique supply-driven cycle. At the moment, we (OPEC and independent U.S. producers) both agreed that we have a shared responsibility in maintaining stability because they are also not insulated from the impact of this downturn. Will Congress start investigating shale for collusion?

Shale producers do have to be smarter about production. You can’t lose money on every barrel and try to make up for it in volume. There is a strong sign that U.S. shale producers are getting the message at least the smart ones are.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.