The No.1 Challenge To The Oil Rallyby Nick Cunningham
The oil price rally could get derailed by “explosive” growth from
U.S. shale in 2018, and “substantial gains” in
Canada and Brazil will also add to the supply woes.
The rally in Brent prices to $70 was driven in part by some
unexpected interruption and geopolitical tension, including the possible unraveling of the Iran nuclear deal, the closure of the Forties pipeline a few weeks back,
disruption in Libya, and the steep decline in
Venezuela’s oil production.
Inventories also continue to decline (for the time being), and even picked up pace at the end of last year. The IEA said that OECD commercial stocks declined by 17.9 million barrels in November, a pace that was
twice as fast as the five-year average. And, in December, preliminary data suggests the declines were even stronger.
However, soaring supplies from the U.S. and other non-OPEC countries threaten to stall the rally. The IEA raised its forecast for U.S. oil production growth this year
from 870,000 bpd to 1.1 million barrels per day (mb/d).
“The big 2018 supply story is unfolding fast in the Americas. Explosive growth in the US and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico,” the IEA wrote.
“It is possible that very soon US crude production could
overtake that of Saudi Arabia and also rival Russia’s.” Russia produces more than 11 mb/d. The U.S. EIA predicted earlier this month that the U.S. would top 11 mb/d by the end of 2019.
OPEC pegged demand growth at a healthier 1.5 mb/d, but even that figure is swamped by the 1.7 mb/d of new supply.
The result could be a return to increases in inventories, testing the current rally in prices.
Source: Oilprice.com
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