The oil market recorded a significant surplus in the first half of 2019, much higher than expected. Looking to the future, supplies are ready to adjust in the second half of the year, but that may only be a hiatus before the excess returns.
The world's oil supply exceeded demand by around 0.9 million barrels per day (mb / d) in the first six months of this year, according to the latest Oil Market Report of the International Energy Agency. This retrospective look alters the prevailing sentiment that occurred a few weeks ago. For example, the IEA said that the oil market recorded a surplus of around 0.5 mb / d in the second quarter, while the agency previously thought there would be a deficit of 0.5 mb / d.
"This surplus adds to the huge accumulation of stocks in the second half of 2018, when oil production soared just as demand growth began to falter," the IEA said. "Clearly, the narrowness of the market is not a problem at the moment and any rebalancing seems to have advanced in the future."
The extension of OPEC + cuts until the first quarter of 2020 eliminates great uncertainty, but the IEA said that "it does not change the fundamental perspective of a market with excess supply".
The conclusions echo those of OPEC itself, which said in its own report published a day earlier that the "call to OPEC" will be significantly lower next year. The growing production of shale in the USA. UU It will surpass additional demand both this year and next, which means that the market could have a significant surplus in 2020. In other words, OPEC + faces a dilemma: keep its current production cutoff agreement intact and face a Excess excess, cut further Related: Oil prices rise amid a further decline in equipment counting
"In our balance sheets, assuming that OPEC's constant production at the current level of around 30 mb / d, at the end of 1Q20, stocks could increase by 136 net mb. The demand for OPEC crude at the beginning of 2020 could fall to only 28 mb / d, "the IEA said. OPEC produced 29.83 mb / d in June.
OPEC placed demand for its oil at a higher level of 29.3 mb / d next year, which is undoubtedly a significant discrepancy with respect to the IEA figure. However, the conclusion is the same: OPEC may be forced to further reduce production if it wants to avoid falling prices. The figures from OPEC imply that it may be necessary to reduce production by 560,000 bpd; The IEA implies a deeper reduction of 1.8 mb / d that could be necessary.
The IEA was diplomatic and said that the threat of a renewed surplus "represents a great challenge for those who have assumed the task of managing the market." In particular, the IEA did not reduce the forecast of demand, remaining with a growth of 1.2 mb / d for this year. Days before, the US EIA UU It reduced its demand estimate to 1.1 mb / d. The IEA, based in Paris, was more optimistic about a rebound in economic growth, even as it reduced the growth rate of second quarter demand by a whopping 450,000 bpd to just 800,000 bpd year-on-year.
The three main forecasters (OPEC, IEA and EIA) see solid growth in the supply of the US shale. UU The specific figures vary, but in general they see that non-OPEC production (with the US shale accounting for most of the total) grows close to 2 mb / d this year, and even more next year . In other words, the growth of non-OPEC supply for both 2019 and 2020 exceeds demand. Related: Oil and gas discoveries increase at high risk oil borders
The little uncertainty in those forecasts is the slowdown in development in the US shale industry. UU As reported by Bloomberg, "the boundaries of the pipelines, the reduction of the flow of wells drilled too close together, the low prices of natural gas and the high costs of the land" are affecting the Texas shale drillers. The financial results are bad and have been quite grim for quite some time. Despite huge increases in production (or, due to such extraordinary growth), oil companies in North America have consumed $ 187 billion in cash since 2012.
The big question is whether the growth rate of the blisters starts to decrease as investors become bitter with the industry. At this time, there is only partial evidence of this, with the countdown of the platform and the growth rate apparently in decline. Bloomberg cited more than half a dozen shale drillers that have drastically reduced their production growth forecasts as the pace of drilling slows. It remains to be seen if, as a whole, the departure from the United States begins to flatten.
If that happens, it would be a massive relief for OPEC, which would find its task of rebalancing a little easier. Otherwise, by 2020, the cartel could be forced to reduce production even more than it already had.
By Nick Cunningham of Oilprice.com
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