What good is it for someone to gain a pipeline, yet lose another? The Forties pipeline is coming back but a loss of a Libyan oil pipeline has the oil bears in a less than festive mood. WTI crude oil hit $60 a barrel yesterday for the first time in 2-and-a-half years and Brent crude hit over $67 a barrel on reports that armed men blew up a pipeline pumping crude oil to Es Sider port on, cutting Libya’s output by up to 100,000 barrels per day (bpd).
That daily catalyst for the spike in price is just another example of how the bearish arguments for oil are going up in smoke. Remember when it was Libya along with Nigeria that the bears said would flood the global oil market and keep the global glut of oil at record highs? When it was Libya and Nigeria that was supposed to break the will of OPEC and cause massive cheating? None of that has turned out to be true. OPEC compliance is better that it ever has been in history and global oil inventories continue to fall at a record pace.
U.S. Inventories have fallen more than 100 million barrels and oil in floating storage has plummeted. Libya has yet to prove it can be a reliable supplier over the long run and Nigeria has struggled not only with rebel groups but with a potential oil worker strike that could happen in the beginning of the new year. And, oil inventories in the United States will fall again and the surplus over the five-year average will soon be totally wiped out. U.S. oil exports and strong global demand, inspired by low oil prices and better U.S. economic policies, have set the demand surge.
Phantom barrels of shale oil--that is supposedly being produced by U.S. shale oil producers--don’t seem to be showing in inventory. Perhaps it is because they are not being produced at the rate that the EIA says that they are.
The Texas Railroad Commission reported earlier this month that oil production in the Permian Basin is down from a year ago. Texas pumped 69.2 million barrels (bbl) of oil in September, compared with an adjusted 81.3 million bbl a year ago, according to the Railroad Commission (RRC) of Texas. That drop in Texas production is more evidence that the EIA data is overinflated.
There was a lot of bad data that misled the oil market earlier this this year and we will pay the price for those mistakes in the new year. How were the bears wrong this year? Let me count the ways. They said that OPEC and Non-OPEC would cheat on production. That was wrong. They said that demand would be lackluster per the International Energy Agency. That Was wrong. Demand growth is at the highest rate in over a decade. They said that we would be producing over 10 million a barrel of oil a day. That was wrong. They said that if Donald Trump won the Presidency the market would crash. That was wrong. Stocks are on a tear and that is foreshadowing more oil demand in the coming years. They said that over a trillion dollars in capital spending cuts wouldn’t matter but already we are seeing a need for those 8 million barrels of oil that were going to be produced.