2018: Supply/Demand Trends Can Make Or Break Oil Prices

Robert Boslego - INO.com Contributor - Energies- Crude Oil Price


The crude oil price started the year off strong, as January posted the highest OPEC Reference Basket price ($66.85) since November 2014, the month in which the Saudis decided to wage an oil price war with American shale oil. But the market gave up its 2018 gain during the first week of January, as the Energy Information Administration (EIA) incorporated the huge November production surge into its short-term outlook and weekly time series data. To top it all off, Baker-Hughes reported the most significant one-week gain in its oil-directed drilling rig count.

Whether the market shifts back to bullish sentiment, or whether the bearish sentiment takes control this year, depends mainly on several key assumptions. The central hypothesis is how fast shale oil production will grow this year, and the second is what OPEC production will be, given the on-going risk to Venezuelan output. Based on U.S. production from August through November, the recent lagged response in drilling rigs, and the high prices experienced October through January; I expect that U.S. production will rise faster than either the DOE or OPEC assume in their forecasts.

EIA’s February Outlook

The EIA released its outlook, revising its U.S. crude production estimates much higher. For the year, it now expects crude production to average 10.59 million barrels per day (mmbd) in 2018, and to exit the year at 11.13 mmbd.

The EIA’s estimate of production for February is 10.260 mmbd. That figure is 1.07 mmbd higher than August. If anything, EIA’s 2018 prediction seems low. Continue reading "2018: Supply/Demand Trends Can Make Or Break Oil Prices"

U.S. Crude Oil Production Surged in November

Robert Boslego - INO.com Contributor - Energies


The Energy Information Administration (EIA) reported that November U.S. crude oil production averaged 10.038 million barrels per day (mmbd) in November, up 384,000 b/d from October. The monthly product number was just shy of the 10.044 mmbd record set in November 1970. This gain was on top of a 17,000 b/d upward revision for October, making the total rise 401,000 b/d. By comparison, the Saudi production cut was about 460,000 b/d.

About 200,000 b/d of the increase was expected since Hurricane Nate had disrupted production in October by about amount. But about 175,000 b/d of the rise was new production. The bulk of the increase was in Texas, accounting for 114,000 b/d. Production in the mid-west was up 23,000 b/d. Gains were wide-spread among numerous states.

Production has surged by 846,000 b/d from September through November. This increase is far more significant than the one reported by the EIA in its weekly numbers or forecast by the EIA in its monthly STEO. The interpolated weekly figures for November imply a monthly average of 9.667 mmbd, 371,000 b/d lower. And the latest weekly average reported by the EIA was 9.199 mmbd. Clearly, the EIA will need to upwardly revise its weekly model soon, probably in next week’s report.

U.S. Crude Oil Production
Continue reading "U.S. Crude Oil Production Surged in November"

Global Oil Stocks to Build in 2018

Robert Boslego - INO.com Contributor - Energies


OPEC released its Monthly Oil Market Report (MOMR) for January, and its projections for 2018 imply a 29 million barrel global stock build, in contrast to 140 million barrel draw it estimated for 2017. As a result, it will not clear the glut, which OPEC estimates to be at 133 million barrels, at the end of November, based on the “latest five-year average.”

In 2017, OPEC production averaged about 32.5 million barrels per day (mbd), adjusting for the change in OPEC membership (i.e., with Indonesia’s 740,000 b/d).

global oil inventory 2017

In 2018, I have assumed OPEC production averages 33.2 mmbd, which is OPEC’s forecast (December) of its 2018 production. However, OPEC production averaged 32.416 mmbd in December.

global oil inventory 2018

OPEC projections imply that global stocks will build much more quickly in the first half of 2018 than they did during the same period in 2017. And the stock draws in the second half of 2018 are expected to be smaller than they were in 2017. Continue reading "Global Oil Stocks to Build in 2018"

Why $80 Crude Oil Is Highly Unlikely In 2018

Robert Boslego - INO.com Contributor - Energies


On January 2, 2018, Byron R. Wien, Vice Chairman in the Private Wealth Solutions group at Blackstone, issued his list of Ten Surprises for 2018. “Byron defines a “surprise” as an event that the average investor would only assign a one out of three chance of taking place but which Byron believes is “probable,” having a better than 50% likelihood of happening.”

Byron’s Ten Surprises for 2018 includes

“The price of West Texas Intermediate Crude moves above $80. The price rises because of continued world growth and unexpected demand from developing markets, together with disappointing hydraulic fracking production, diminished inventories, OPEC discipline and only modest production increases from Russia, Nigeria, Venezuela, Iraq, and Iran.” Continue reading "Why $80 Crude Oil Is Highly Unlikely In 2018"

U.S. Production And Oil Inventories Expected to Rise in 1Q18

Robert Boslego - INO.com Contributor - Energies


According to the Energy Information Administration (EIA), U.S. petroleum inventories (excluding SPR) fell by 14.2 million barrels in the week ending December 15, 2017. They stand about 2 million barrels (mmb) higher than the rising, rolling 5-year average and are about 96 mmb lower than a year ago.

Total U.S. Oil Stocks

Commercial crude stocks fell by 6.5 mmb, and SPR stocks were built by 0.4 mmb last week. Gasoline stocks rose by 1.2 mmb, and distillate stocks gained 0.8 mmb. Primary demand rose by 640,000 b/d to average 19.948 million barrels per day (mmbd).

Crude Production

The EIA estimated (using its model, click here for presentation) that U.S. crude production rose by 9,000 barrels per day to 9.789 mmbd, the highest week in EIA’s database. Production averaged 9.740 mmbd over the past four weeks, up 11.4% v. a year ago. In the year-to-date, crude production averaged 9.313 mmbd, up 6.3% v. last year. Continue reading "U.S. Production And Oil Inventories Expected to Rise in 1Q18"