U.S. to account for most world oil output growth over 10 years - IEA

Global Stock Markets

The United States is expected to account for more than 80 percent of global oil production growth in the next 10 years and it will produce 30 percent more gas than Russia by that time, he International Energy Agency (IEA) said on Thursday.

This has implications on the oil markets, prices, trade flows, investment trends and the geopolitics of energy,” IEA head Fatih Birol said at a U.N. climate conference in Bonn.

He said the United States, whose upstream energy industry has seen a resurgence with the development of fracking technology, would become the “undisputed leader of oil and gas production worldwide.”

On the broader market, he said the IEA expected oil markets to rebalance in 2018 if oil demand remained “more or less” as robust as it was now and if the Organization of the Petroleum Exporting Countries and its allies extended output cuts.

OPEC and other producers are expected to extend production cuts beyond a March deadline in a bid to cut oversupply.

The Paris-based IEA cut its oil demand forecast in its latest monthly report by 100,000 barrels per day (bpd) for this year and next, to an estimated 1.5 million bpd and 1.3 million bpd, respectively. [IEA/M]

It also said oil inventories in the developed world fell by 40 million barrels in September, dropping below 3.0 billion barrels for the first time in two years.

According to OPEC’s own numbers, inventories were 154 million barrels above the five-year average in September. OPEC states have said they want to reduce stocks to their five-year average.

Oil markets cautious as rising U.S. output undermines OPEC supply cuts

Oil Stock Markets

Oil prices fell on Tuesday as the prospect of further rises in U.S. output undermined ongoing OPEC-led production cuts aimed at tightening the market. 

Brent crude futures LCOc1 were at $62.94 per barrel at 0415 GMT, down 22 cents, or 0.35 percent, from their last close. U.S. West Texas Intermediate (WTI) crude CLc1 was at $56.62 per barrel, down 14 cents, or 0.25 percent.

The falls came after both crude benchmarks early last week hit highs last seen in 2015, but traders said the market had lost some momentum since then.

Traders said they were cautious on betting on further price rises.

The U.S. government said on Monday U.S. shale production for December would rise for a 12th consecutive month, increasing by 80,000 bpd.

Fitch Ratings said in its 2018 oil outlook that it assumed 2018 “average oil prices will be broadly unchanged year-on-year and that the recent price recovery with Brent exceeding $60 per barrel may not be sustained”. So far in 2017, Brent has averaged at $54.5 per barrel. 

Despite the cautious sentiment, traders said oil prices would unlikely fall very far, largely due to ongoing supply restrictions led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia, which have contributed to a reduction in excess supplies.

OPEC also raised its oil demand forecast, saying the world would need 33.42 million barrels per day (bpd) of OPEC crude next year, up 360,000 bpd from its previous forecast and marking the fourth consecutive monthly increase in the outlook since July.

In China, refiners raised crude oil processing runs to near record monthly levels in October, with operations increasing by 7.4 percent to 50.51 million tonnes, or 11.89 million bpd, China’s statistics bureau said on Tuesday.

OPEC is due to meet on Nov. 30 to discuss further output policy. The group is expected to agree an extension of the cuts beyond their current expiry date in March 2018.

Looking further out, the International Energy Agency said on Tuesday there will be 50 million electric vehicles (EVs) on the road by 2025 and 300 million by 2040, from around 2 million now.

This is expected to cut 2.5 million bpd, or about 2 percent, off global oil demand by that time.
Still, the IEA’s “New Policies Scenario”, based on existing legislation and policy intentions, expects oil prices to rise towards $83 a barrel by the mid-2020s.

Traders bet their oil storage assets that OPEC cuts will work

The jury is still out on whether OPEC can rein in a global oil glut but top commodity traders are betting it can by selling stakes in storage tank businesses that profited from oversupply.

Since January, Glencore, Vitol and Gunvor have completed or have been seeking to sell parts of their holdings in storage firms.

Vitol's deal was agreed in October, before the Nov. 30 announcement by the Organization of the Petroleum Exporting Countries that it would cut output from Jan. 1. Vitol's deal was completed in January, and others have lined up sales since.

The five top traders, who also include Mercuria and Trafigura, expect OPEC to extend output cuts into the second half of 2017, which would help draw down global inventories.

When inventories are plentiful, the oil price for future delivery tends to be above the price for prompt delivery, a state known as contango, when it pays to be in the storage business, taking fees and selling stored oil forward at a profit. This has been the situation since mid-2014.

At times, the prompt price was more than $1 less than a barrel for delivery a month later. With an abundance of crude supplies, trading houses could book easy profits by buying crude and storing it after selling it forward.

As stockpiles draw down, the oil price for prompt delivery tends to trade above future prices, a condition known as backwardation. At this point, oil cannot be sold forward at a quick profit and the storage business loses its luster.

Till now, there have been few clear signs that OPEC and non-OPEC cuts of 1.8 million barrels per day (bpd) were working, with global stockpiles stubbornly high, according to U.S. data and International Energy Agency (IEA) figures.