Is The Oil Glut Set To Return? | Zero Hedge
Description: For the second month in a row, the IEA has poured cold water onto the oil market, publishing an analysis that suggests 2018 could hold some bearish surprises for crude.
Keywords: Zero Hedge,Zerohedge,Finance,Economics,Markets,Politics,Analysis,China,Crude,OPEC,Saudi Arabia
Date: 2013-01-07T00:00:00Z

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# Is The Oil Glut Set To Return?

by Tyler Durden
Dec 15, 2017 9:14 AM
0
SHARES

Authored by Nick Cunningham via OilPrice.com,

For the second month in a row, the IEA has poured cold water onto the oil market, publishing an analysis that suggests 2018 could hold some bearish surprises for crude.

The IEA’s December Oil Market Report dramatically revises up the expected growth of U.S. shale, which goes a long way to torpedoing the excitement around the OPEC extension.

Late last month, when OPEC agreed to extend its production cuts through the end of 2018, the U.S. EIA came out with data – on the same day as the OPEC announcement – that showed an explosive increase in shale output for the month of September, up 290,000 bpd from the month before.

Although there is a time lag on publishing production data, the huge jump in output in September, plus the spike in rig count activity over the past few weeks, points to strength in the U.S. shale sector. Against that backdrop, the IEA predicted that non-OPEC supply would grow by 1.6 million barrels per day (mb/d) in 2018, a rather significant upward revision of 0.2 mb/d compared to last month’s report.

Adding insult to injury for OPEC, the IEA sees oil demand growing by just 1.3 mb/d. In other words, supply will grow at a faster pace than demand next year, opening up a global surplus once again. “So, on our current outlook 2018 may not necessarily be a happy New Year for those who would like to see a tighter market,” the IEA said. The surplus will be front-loaded – the first half of the year will see a glut of about 200,000 bpd.

(Click to enlarge)

“A lot could change in the next few months but it looks as if the producers’ hopes for a happy New Year with de-stocking continuing into 2018 at the same 500 kb/d pace we have seen in 2017 may not be fulfilled,” the agency wrote. In the past few months, a sense of bullishness and optimism returned to the oil market for the first time in years, but the IEA warned that it won’t last.

The news wasn’t all bad for oil bulls. OPEC production fell by 130,000 bpd in November, due to lower output in Saudi Arabia, a rather large decline in Angola, and the continued erosion of output from Venezuela. It is the fourth consecutive month of falling output from OPEC, and the compliance rate for the cartel jumped to 115 percent in November, the highest rate so far this year. That bodes well for the extension of the deal – OPEC and its partners seem resolved to keep compliance high heading into 2018.

Inventories also continue to decline. The IEA said that OECD commercial stocks fell by 40.3 million barrels in October to 2,940 mb, the lowest level since July 2015. That decline was almost twice as large as usual for this time of year. And for crude inventories specifically, they fell counter-seasonally by 19.7 mb, including the first decline in China this year.

But even there, the IEA was quick to point out reasons to be bearish, noting that the inventory drawdowns will soon end. “Going into 1Q18, our balances imply that global oil stocks will increase by 300 kb/d, assuming stable OPEC crude production of 32.5 mb/d,” the IEA said in its report.

Those increases in inventories in 2018 largely come down to U.S. shale, which continues to grow at an impressive rate. Rystad Energy says that almost 1,000 horizontal wells were completed in October, the highest total since March 2015. That should ensure a rush of fresh supply will be added onto the market by the end of this year and into 2018.

Overall, the downbeat conclusions from the IEA report were largely backed up by OPEC itself a day earlier. The cartel published data that also anticipated large increases in U.S. shale output, including an upward revision for 2017 output by 150,000 bpd – an acknowledgement that shale drillers are adding supply at a faster rate than expected. More ominously, OPEC predicts that the U.S. will add more than 1 mb/d of new supply in 2018 – a truly staggering figure.

Putting it all together, OPEC is essentially keeping 1.2 mb/d off of the market in 2018 so that the U.S. can add 1 mb/d. It’s a quite a gamble; a bet that by doing so, the group can prevent oil prices from falling. But the payoff is debatable. OPEC is selling less oil and allowing the U.S. to sell more.

The bet is that next year inventories will fall and oil prices will gradually rise, but the IEA’s report predicts that such a scenario may not play out.

- China
- Crude
- Saudi Arabia
- OPEC

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pachanguero Dec 15, 2017 9:19 AM

snore fest

cheka pachanguero Dec 15, 2017 9:47 AM

but peak oil...

one of their best scams

LawsofPhysics Dec 15, 2017 9:19 AM

With almost 8 billion people all competing for the remaining resources and consumable calories that are required to maintain a decent standard of living and innovative economy, there is plenty of demand.

However, one should always recognize that talking about the "price" of anything in the absence of a mechanism for true price discovery is a fool's errand. Your global oligarchs will tell you what to pay/sacrifice, and for now, it will always be just a little more than you can afford!

"Full Faith and Credit"

same as it ever was!!!

sabaj49 LawsofPhysics Dec 15, 2017 9:42 AM

should we consider the asian pivot of saudi arabia - ie reduce u.s. imports and send them to china/other countries and thereby starve inventory in u.s. (not globally)

sabaj49 LawsofPhysics Dec 15, 2017 9:42 AM

should we consider the asian pivot of saudi arabia - ie reduce u.s. imports and send them to china/other countries and thereby starve inventory in u.s. (not globally)

Wise Gold Dec 15, 2017 9:23 AM

We have learnt not to trust the data. So far the guys on ZH who have been using the oil triggers Shepwave issues have been right. Same for the equity indexes.

pascal bets Wise Gold Dec 15, 2017 9:34 AM

SHepWAvE has been nailing markets bigly. The others are playing blind guessing game.

Wise Gold pascal bets Dec 15, 2017 9:46 AM

See the gap up open just like they said. Now let's see if Shep can nail the high of the day like yesterday.

DownWithYogaPants Wise Gold Dec 15, 2017 11:07 AM

I prefer MoeWave. beeeebebebebebe

Numbskull !!

Buddha 71 Dec 15, 2017 9:29 AM

oil is being manipulated so heavily now, supply has been totally disconnected from demand, as in most commodities. when the price drops, it will hit the 30's again. , as us income remains flat to negative, useage will keep flattening till it we use less than opec produces. us drivers driving fewer miles due to ecommerce, online ordering and fewer trips to the store. automotive expenses will drop faster and further. so as the idiot arabs keep lying to each other and the world about "cutting production", oil storage will build in oil tankers around the globe. the next leg down, mid 30's please.

at some point oil will be "beyond manipulation" since as useage growth keeps shrinking, fewer consumers actually give a shit about oil prices, since at some point oil/gas will become a smaller and smaller percentage of consumers overall budget. oops, price irrelevant.

pascal bets Buddha 71 Dec 15, 2017 9:33 AM

Once all of the new energies fail on their face oil will go up bigly again.

LawsofPhysics pascal bets Dec 15, 2017 9:38 AM

Oil is used for many other things, energy is NOT the largest use actually. reduced hydrocarbons (Oil) has great utility. In a real market, anything with great utility would be priced a bit higher than something like a tweet, which really has no utility at all. What is Twitter valued at again?

LOL!

"Full Faith and Credit"

geno-econ LawsofPhysics Dec 15, 2017 9:58 AM

WAR consumes a great deal of energy in the form of Oil which is not in any demand forecasts.

LawsofPhysics Buddha 71 Dec 15, 2017 9:35 AM

Global consumption of oil has remained steady. Wake the fuck up, oil has great utility, period.

The issue is not with the utility however, this is all about what all that useful oil is priced in. Yes, from the standpoint of the consumer, the source of the oil (ground or an engineered algae) is irrelevant.

"Full Faith and Credit"

same as it ever was!!!

silverer Dec 15, 2017 9:35 AM

I've decided to stop manufacturing everything. It's for the good of the environment and the happiness of Democrats. The perfect economy. No productivity, just unicorns.

Hubbs Dec 15, 2017 9:40 AM

Heaping deception upon deception?

Shale oil may be a bust in 2-3 years based on relatively fast depletion rates of the wells. But to unload these unprofitable oil plays, and to which the banks are propping up financially until the shale companies can find some sucker bagholder buyers, they got to keep drilling like mad to give the appearance that shale oil is profitable and plentiful.

Meanwhile, Saudi Arabia and other oil producers are trying to hide the fact that their oil reserves are in decline and are trying to hide this by stating that they are "withholding production to maintain price floor." BS! After all, who is going to buy into Saudi's oil company if it has only 1/2 the stated reserves?

Just like precious metals physical vs paper prices, the oil industry "valuations" are rife with fraud and deception. Prices of oil based on inventories and demand go up and down faster than a dippy bird's head!

vaporland Hubbs Dec 15, 2017 9:43 AM

I have not read about relatively fast depletion rates being a factor with shale.

i like cheap gasoline and natural gas (earthquakes and contaminated water tables, not so much)

i would be interested in a link describing this fast depletion - thanks

Hubbs vaporland Dec 15, 2017 10:22 AM

I'm no expert in either finance, geology, or chemical engineering. (Retired surgeon). I can only read about it in Steve St Angelo's blog. He may be viewed as a bit of a "renegade" by some, but in this age of incessant disinformation, one has to cover all bases, and his insights are certainly worth serious consideration, especially since he seems to try to back his theory with some hard data, assuming we can trust that data, and he is quite willing to take on squarely any rebuttal to his arguments.

https://srsroccoreport.com/u-s-shale-oil-production-update-financial-car...

https://srsroccoreport.com/

Cloud9.5 Dec 15, 2017 9:51 AM

There is no truth, there is simply perception. Everyone is talking their book. What we think we know is based on managed mimes. This works until real resource constraints hit us. We all live in a monstrous Rube Goldberg machine with millions of critical parts. Oil is absolutely essential for its continued function. Exponential credit is a large part of the mechanism that supports the spice trade. As long as the credit continues and the spice flows we are good.

Solio Dec 15, 2017 10:07 AM

Could plant-based lubricants be used to replace crude-based oil products. So, instead of having oil and gas wells polluting millions of acres worldwide there would be plantations for growing plant-based substitutes. Save the aquifers!

https://www.hort.purdue.edu/newcrop/ncnu02/v5-029.html

Trader200K Dec 15, 2017 10:27 AM

Sure, if it's technically equal and price competitive.

Channel Oscar Wyatt and Bring it on.

But if it is an academic exercise that only can be financed by tax dollars and they can't put quart bottles in every Walmart, fer . get . it .

Got Chemistry? Make a real product or get off the pot.

T

Rainmaker Dec 15, 2017 10:45 AM

What happens if there is a recession?

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