Analysts at Raymond James anticipate U.S. production from May of 2015 through the end of the year to show sequential declines of about 50 MBOPD per month until March of 2016. But there are also real cuts in exploration and development programmes which will have a direct impact on the replacement of declining output.
Other leading industry organizations are echoing this sentiment.
Deutsche sees oil oversupply of 700,000 barrels a day in 2016, but expects the market to be roughly balanced by 2017.
“People are getting ready to press the “buy” button, but the thing is we are probably just still a couple of months too early”, Saxo Bank commodities strategist Ole Hansen said. There are also millions of barrels of oil in storage across the world, bought when crude was cheap in hopes of selling at a higher price, keeping supply and demand out of balance even after output is reduced in the U.S. Saudi Arabia in particular wanted to avoid the nightmarish scenario it faced in the 1980s when it lowered production to lift oil prices, only to lose market share in the process. And the numbers certainly match the IEA’s assertion.
Decline rates will cut output by several million barrels per day each year in 2016 and 2017 unless oil producers invest to maintain production levels from existing fields and develop replacement fields. What is more relevant is setting the call against the declared production and assessed actual production levels. 265 million barrels a day last month, down from 10.361 million barrels a day in July.
The cartel maintained in its latest report that this was based on a gross reduction in the United States output which previously constituted a major factor in non-OPEC oil supply.
Despite the bullish IEA forecast for the coming year, supply – at 96.3m b/d in August – continues to outpace demand and inventories are building. That’s still about 1.2 million less than the 31.54 million daily barrels its members produced in August.
It forecasts Canadian production will average 4.4 million barrels a day in 2015, revising that estimate up slightly by 90,000 barrels because of new oilsands production that has come online.
While Europeans generally pay more for fuel due to higher taxes, the lower oil price still feeds through and gives drivers a break.
Thirty-seven years to the day after Mork and Mindy first appeared on our TV screens, and markets this week are set to be out of this world.
But it gets more complicated.
The group sees global demand rising by 1.46mn b/d in 2015 – some 84,000 b/d faster than forecast last month – but below the IEA’s 1.7mn b/d. Since a shortage would bring about a spike in prices and allow rivals to re-enter the market, this is something it wishes to avoid at all costs.