Reuters report on what analysts & some in the industry are expecting
- Larger producers are re-opening the taps in low-cost plays in Texas, but also in expensive shale basins in North Dakota and Oklahoma.
- “With prices where they are now, if they stay above $30, I wouldn’t expect any significant curtailments from us in Q3 or beyond,” Devon Energy Corp Chief Executive David Hager said at a J.P. Morgan energy conference on Tuesday.
This would be a rapid (albeit partial) bounce back from prior supply cuts in shale. It’ll add pressure back onto OPEC+ who recently agreed to extend their their output cuts. Supply coming back on line as prices rise … pretty textbook economics this.
IEA comments on the oil market in its latest report
- Floating storage of crude oil in May fell by 6.4 mil barrels m/m to 165.8 mil barrels
- Global oil supply fell by 11.8 mil bpd in May
- Helped by OPEC+ countries reducing output by 9.4 mil bpd
- Sees oil demand next year to rise by 5.7 mil bpd, but still lower than in 2019
- Oil demand next year to remain 2.4 mil bpd below 2019 levels
On OPEC+, IEA says that they made a “strong start” and delivered 89% of its pledge to cut output but warns that rising prices could pose a problem:
“The market may present producers with an opportunity to ramp up more quickly than dictated by current OPEC+ policy, or US and other non-OPEC production could recover more strongly than forecast.”
With oil prices having moved up back close to $40, nobody – even US shale drillers – will want to miss out on the party.
Weekly US energy inventory data from the EIA:
- Gasoline vs -1000K expected
- Distillates +1568K vs +3500K
- Cushing -2279K vs +1739K prior
- Refinery utilization +1.3% vs +0.61% expected
- Production 11.1 mbpd
The API data released late yesterday:
- Cushing -2285K
- Gasoline -2913K
- Distillates +4271K
The oil market hasn’t done much on the news with WTI down 86-cents to $38.31 today.
Via UBS, their WTI Q4 2020 price forecast is $31
Snippets from the report:
The 6 June OPEC+ meeting agreed a first phase extension by a month to July
- Recent additional cuts of ~1.2Mbd from Saudi/UAE/Kuwait/Oman will not extend
- tone on compliance is harder
past 2-3 months has been the rapid fall in US production
- Oil price rebound likely prompts some of this production back in coming months and
next OPEC+ meeting scheduled for 1 December
- monthly JMMC meetings will monitor market developments and OPEC+ compliance behaviour, which has helped with the price rebound.
A statement from Libya’s National Oil Corp says workers have been told to stop due to an armed force entering the El Sharara oilfield
El Sharara oil field is located in Murzuq Desert
- Libya’s largest oil field
- only resumed production on Sunday
I’m gonna have to trust Google maps is correct on this location. The label could see ‘free ice creams’ for all I know.
Crude starts the week higher
WTI crude rose as high as $39.90 shortly after the open. It’s since ticked a few cents lower to $39.83, which is up 25-cents on the day.
OPEC+ announced a one-month cut extension on the weekend but it wasn’t all good news as some Libyan production came back online.
Keep a close eye on the $40 with crude in the March gap. The bottom end of it is $41.05.