World Oil Supply And Price Outlook, November 2019

The Energy Information Administration released its Short-Term Energy Outlook for November, and it shows that OECD oil inventories likely bottomed last June 2018 at 2.794 billion barrels. It estimated stocks rose by 1 million barrels in October to 2.909 billion, 69 million barrels higher than a year ago.

For the balance of 2019, OECD inventories are projected to stabilize at 2.900 billion, 55 million higher than end-2018. For 2020, EIA projects that stocks will build by 59 million barrels to end the year at 2.959 billion.

Oil

The EIA estimated that OPEC production rose by 1.325 million barrels per day in October, 1.3 of which was in Saudi Arabia due to the recovery from the attack on its oil facilities. It is estimating that OPEC production averaged about 29.52 million in October. For 2020, it estimates that OPEC production will average about 29.52 million, about 160,000 b/d above the call (demand) for OPEC oil in 2020. Continue reading "World Oil Supply And Price Outlook, November 2019"

U.S. Crude Production Surged In August

The Energy Information Administration reported that August crude oil production averaged 12.365 million barrels per day (mmbd), up 599,000 b/d from July. The gain was primarily due to the fact that July production had dropped due to Tropical Storm Barry, which shut-in 9.2 million barrels, or 297,000 b/d for the month, based on real-time estimates. In addition, July production was revised downward by 40,000 b/d. Nevertheless, the net increase of around 250,000 b/d from the adjusted July figure was a large increase and confirms the EIA’s weekly estimates for the month.

Production in the Gulf of Mexico reached a new high at 2.006 mmbd. The previous record was 1.979 mmbd in April. Texas production also reached a new high of 5.121 mmbd, up 98,000 b/d from July. Other gains were 43,000 b/d in New Mexico, 28,000 b/d in North Dakota, 15,000 b/d in Louisiana and 12,000 b/d in Colorado. Alaska was down 66,000 b/d for seasonal reasons, and that production is likely to return.

Plains All American Pipeline LP’s (PAA) Cactus ll pipeline was expected to ship 300,000 b/d in August and to be at full capacity, 670,000 b/d, in September. EPIC Midstream’s crude oil pipeline began shipping 400,000 b/d. It is designed to ship 440,000 b/d from the Permian and another 150,000 b/d from the Eagle Ford.

Phillips 66 Partner’s Gray Oak pipeline is expected to ship an additional 900,000 b/d. It is scheduled to being shipments by year-end.

The effect of the pipeline additions will narrow the spread between Midland and the U.S. gulf prices, effectively lowering breakeven costs in the Permian.

Crude Production
Continue reading "U.S. Crude Production Surged In August"

Outlook For OPEC's Next Meeting

The next OPEC meetings are scheduled for early December. At issue is how they will deal with the outlook for the reduced demand for OPEC oil in 2020.

OPEC
Source: OPEC

According to Bloomberg:

“The OPEC+ group of oil producers will need to make deeper output cuts when they meet in December. That’s the inescapable conclusion from the latest round of monthly reports published by the three big oil-forecasting agencies.”

OPEC

According to Reuters reporting, “Saudi Arabia, OPEC’s de facto leader, wants to focus first on boosting adherence to the group’s production-reduction pact with Russia and other non-members, an alliance known as OPEC+, before committing to more cuts, the sources said…A second OPEC source said: “Of course deeper cuts are an option, but some things should happen before that. The rest of the OPEC+ countries will not cut deeply if Iraq and Nigeria don’t comply 100%.”

Supply Adjustments

OPEC released a table in January showing the “Voluntary Adjustment” to “Reference Production,” which result in the “Voluntary Production Level” for the OPEC and non-OPEC participants. Libya, Iran, and Venezuela were exempted.

OPEC

As shown above, OPEC production “quotas” for the other OPEC members totaled 25.937 million barrels per day. For August 2019, prior to the attack on Saudi facilities in September, OPEC production totaled 29.8 million barrels per day.

OPEC

Using the 25.937 million as a base, and adding actual September production of 2.159 for Iran, 1.164 for Libya, and .644 for Venezuela gives a total of 28.894. Demand for OPEC oil is projected (by OPEC) to be 29.6 in 2020, so it requires an additional cut of .294 million barrels per day.

Saudi Arabia has been willing to cut that much below its target. So the key for them is getting the biggest over-producers to comply, which is Nigeria, Iraq, and Russia.

Nigeria

Nigeria will make cuts to its crude oil output to comply with OPEC output targets, Mele Kolo Kyari of the Nigerian National Petroleum Company (NNPC) said.

According to OPEC’s numbers, Nigeria had pumped 1.859 in September, 175,000 b/d beyond its quota.

However, there may be a bigger problem brewing for the future. Kyari said that Nigeria hoped to raise oil production to about 3 million bpd in the next 2 to 3 years.

Iraq

Iraq will be fully compliant by October with agreed oil output cuts under an OPEC-led supply deal, and Baghdad’s reduction will amount to 175,000 barrels per day (bpd), Oil Minister Thamer Ghadhban said.

Iraq produced 4.724 in September. Its quota is 4.512. So the difference is actually a little more than 200,000 b/d.

Russia

According to numbers reported by the Joint Organizations Data Initiative (JODI), Russian production in August was only 86,000 b/d lower than last October, the reference month. The country had promised to cut its output by 230,000 b/d.

Russian oil production

Conclusions

Thanks to the effects of sanctions on Iran and Venezuela, OPEC’s production cuts are far greater than had been planned. And so the task of lowering production to meet demand in 2020 is doable, assuming those overproducing actually do comply, and Saudi Arabia is willing to keep underproducing.

However, the opposite side of the coin is the risk that U.S. sanctions on Iran will be lifted prior to the U.S. presidential election next year. If they are, OPEC will have upwards of another 1.7 million barrels to cut to make room for Iran, and that would be very challenging, at best.

Check back to see my next post!

Best,
Robert Boslego
INO.com Contributor - Energies

Disclosure: This contributor does not own any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

World Oil Supply And Price Outlook, October 2019

The Energy Information Administration released its Short-Term Energy Outlook for October, and it shows that OECD oil inventories likely bottomed last June 2018 at 2.807 billion barrels. It estimated stocks dropped by 11 million barrels in September to 2.882 billion, 24 million barrels higher than a year ago.

For the balance of 2019, OECD inventories are projected to rise, on balance. The third quarter seasonal stock draw was 26 million barrels. And stocks are projected to rise by 6 million in the fourth quarter, ending the year at 2.878 billion barrels, 15 million more than at the end of 2018. For 2020, EIA projects that stocks will build by 59 million barrels to end the year at 2.937 billion.

Oil

The EIA estimated that OPEC production fell by 1.55 million barrels per day in September, most of which was in Saudi Arabia due to the attack on its oil facilities. It is estimating that OPEC production will average about 29.69 million in October, due to the rebound by Aramco. For 2020, it estimates that OPEC production will average about 29.62 million, above the call (demand) for OPEC oil in 2020. Continue reading "World Oil Supply And Price Outlook, October 2019"

World Oil Supply And Price Outlook, September 2019

The Energy Information Administration released its Short-Term Energy Outlook for September, and it shows that OECD oil inventories likely bottomed last June 2018 at 2.805 billion barrels. It estimated stocks edged 1 million barrels higher in August to 2.895 billion, 43 million barrels higher than a year ago.

For the balance of 2019, OECD inventories are projected to rise, on balance. The third quarter seasonal stock draw was over in July. Third-quarter stocks are projected to rise by 2 million, instead of the seasonal draw. And stocks are projected to rise by 6 million in the fourth quarter, ending the year at 2.911 billion barrels, 50 million more than at the end of 2018. For 2020, EIA projects that stocks will build 67 million barrels to end the year at 2.978 billion.

Oil

The EIA has confirmed that OPEC production edged higher (23,000 b/d) in August v. July. It is also estimating that OPEC production will average about 29.6 million in 2020, and that figure is about 400,000 b/d higher than OPEC’s August estimate of the call (demand) for OPEC oil in 2020. Continue reading "World Oil Supply And Price Outlook, September 2019"