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Page added on May 7, 2016
Americas, Asia do what OPEC wouldn’t: cut oil production
Wildfires in Canada. Instability in Venezuela. Stalling U.S. frackers. Drops in oil output are happening so fast that it looks as if the Americas alone could resolve global oversupply.
The 70 percent oil price slide LCOc1 CLc1 between 2014 and early 2016 has been pegged to one problem: production exceeding demand by as much as 2 million barrels per day (bpd).
But oversupply is evaporating quickly due to output cuts in the Americas – including the United States, Canada and Latin America – and also increasingly in Asia.
“Unplanned oil supply disruptions have been a key element so far this year that have contributed to a tighter oil market than was otherwise expected,” said analyst Guy Baber of Simmons & Co.
If the disruptions last, there will be limited spare capacity to meet demand, Baber cautioned.
Output from the Americas dropped over 1.5 million bpd last quarter, while producers in Asia and Australia cut some 250,000 bpd, eating away large chunks of the world’s oversupply, government, industry and consultancy data shows.
This comes at a time when members of the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, have refused to curb output in order to retain market share and squeeze out higher-cost competitors.
“The Saudis have achieved what they want in that the market is re-balancing through price,” said senior oil analyst Neil Beveridge of Sanford C. Bernstein.
“Over the past 12 months Saudi has raised production, putting downward pressure on price to bring back discipline among the producers. This is now playing out.”
In fact, with so much non-OPEC output now off the market, producers like Saudi Arabia and Qatar have been able to raise supplies and prices for shipments to Asia, the world’s top oil consuming region.
Outages in Canada are also helping speed up the re-balancing, Beveridge added.
CUTS GALORE
A raging wildfire in Fort McMurray, at the heart of Canada’s oil sands region, has forced more than 690,000 bpd out of production, according to Reuters estimates, with more disruptions possible.
“In the last two years, outages have not been the focus because of the imbalance in the market, but that changes now that the market is tightening,” said Richard Gorry, director of JBC Energy Asia.
U.S. output, down by 410,000 bpd this year and 800,000 bpd since mid-2015, is expected to slide another 800,000 bpd in the next five months, according to the Energy Information Administration.
Latin America’s crude oil production, suffering from under-investment, fell 4.6 percent in the first quarter to 9.13 million bpd, a loss of 441,000 bpd from the same period a year ago, according to data from individual countries and OPEC.
The largest decline was in Venezuela, which lost 188,000 bpd in the first quarter as President Nicolas Maduro’s government wrestles a deep economic crisis.
Production is also on the wane across Asia Pacific.
China, the region’s biggest producer and consumer of oil, is expected to see a 6 percent drop in crude output in 2016 due to ageing fields and poor economics, Standard Chartered bank said.
Signs of tighter supply helped lift oil prices to more than five-month highs last week. U.S. WTI crude hit an intraday high above $46 a barrel on Thursday, within striking distance of recent peaks. [O/R]
Nonetheless, with rising Middle Eastern output, near-record Russian production and brimming storage tanks, the global glut is set to stay for some time.
Brent futures for delivery five years out are only at a small $10-per-barrel premium to one-month contracts, an indication the “lower for longer” price scenario may linger.
9 Comments on "Americas, Asia do what OPEC wouldn’t: cut oil production"
JuanP on Sat, 7th May 2016 7:52 am
Russia’s Rosneft makes first LNG export shipment, https://www.rt.com/business/342073-rosneft-lng-egypt-export/
Kenz300 on Sat, 7th May 2016 10:28 am
Canadian tar sands need to stay in the ground………..
Climate Change is real and it will impact all of us………
Pope Francis’s edict on climate change will anger deniers and US churches | World news | The Guardian
http://www.theguardian.com/world/2014/dec/27/pope-francis-edict-climate-change-us-rightwing
Head Of The Episcopal Church Says It’s ‘Sinful’ To Ignore Climate Change
http://www.huffingtonpost.com/2015/03/26/katherine-jefferts-schori-climate-change_n_6949532.html?utm_hp_ref=green&ir=Green
shortonoil on Sat, 7th May 2016 11:22 am
Another oil commentator who does not understand that oil production is an energy function, not a volumetric function. It is only oil producers who care about volume; that is because they sell oil by the barrel. The economy only responds to the quantity of energy it receives, the amount of oil in barrels is irrelevant without a delivered energy per barrel figure.
That trips them up when they try to determine price/ production relationships. Oil powers the economy, and the economy is the source of demand for the oil. They are not mutually exclusive. As the energy supplied to the economy per barrel goes down, the number of barrels supplied must increase enough to maintain that economy. That has not happened so the economy is now contracting, and with that contraction has come a weakened demand for oil. Consequently, the price fell.
The idea that there will be a balanced market, where supply becomes equal to demand requires two assumptions that are not true.
1) That, on a dollar bases, oil can power enough economic activity to return the price payed for it regardless of that price.
2) That the amount of economic activity that a barrel of oil can power is constant.
The price of oil is now far below its theoretical maximum level. The world’s economy is contracting faster than is oil ability to power it:
http://www.thehillsgroup.org/depletion2_0 22.htm
This discrepancy may be resulting from the depletion of other fuel sources such as coal and NG, which is not taken into consideration by the Etp Model. It may be resulting from a skewed monetary policy that is attempting to push growth that is not fundamentally possible. Regardless, it now requires more energy to produce oil and its products than it supplies to the economy. With oil production itself now the largest user of the energy that comes from oil, a decline in production will be met by an equal decline in demand. The oil market today is like a dog chasing its tail, no matter how fast it runs it never catches up!
http://www.thehillsgroup.org/
rockman on Sat, 7th May 2016 12:18 pm
There has no meaning VOLUNTARY reduction of producing oil wells in the US. It’s much more common for companies (especially pubcos) to increase rates. OTOH there has obviously been a big reduction in production from NEW WELLS which, given the huge drop in rig count, shouldn’t be a surprise.
dave thompson on Sat, 7th May 2016 7:44 pm
http://oilprice.com/Latest-Energy-News/World-News/Newest-Refinery-in-US-Could-Fall-to-Low-Oil-Prices.html
James Tipper on Sun, 8th May 2016 1:12 pm
@shortonoil
I’m not going to lie, your insight on oil is the reason I come on this website.
HARM on Sun, 8th May 2016 1:56 pm
What rockman said.
We were right about the fundamental finiteness of “oil” and the impossibility of infinite growth. However, we were dead wrong on the timing. Peak Oil isn’t here yet, and may not be here for a generation or longer. Fracking, tar sands, offshore drilling and other sources of hard-to-get/tight oil have delayed the peak for now.
rockman on Mon, 9th May 2016 6:17 am
HARM – “Peak Oil isn’t here yet…”. Perhaps not. And the economic damage, deaths and other suffering the world has suffered over the last 10 years over the energy dynamic proves just how unimportant is the actual date of global PO.
Kenz300 on Mon, 9th May 2016 10:14 am
Wild fires in Canada have done what low prices were unable to do ……….force tar sands producers to cut production.