Oil: 56.74, -0.43.
Oil Surged into Monday with a new breakout rally high, then tested laterally the rest of the week, waiting for the 10 day EMA to catch up to the move.
Source: Investment House
Opec also decided to cap the combined output of Nigeria and Libya at 2017 levels below 2.8 million bpd.
The next meeting is scheduled for June 21.
“In Iraq’s Kurdistan there is a major risk to oil exports because of tensions with Baghdad, in Libya militias are still fighting, in Nigeria the risks of disruptions are significant, Venezuela is on the verge of default, Iran could again face US financial sanctions and even in Saudi Arabia political risk is on the rise,”
There is one dominant factor that keeps adding downward pressure, large and still growing supply from North American shale producers.
“Demand growth has rarely been this strong, global oil reserves peaked 30 years ago, new oil discoveries are at all-time lows, and we think non-OPEC, ex-U.S., production is doomed at current prices”.
Shale companies will struggle to keep growth rates up as they deplete the most profitable wells and have to move to higher-cost locations.
“[Shale producers] are starting to face pressure from investors to stop growing at all costs, but to look at growing within their cash flows. So we think U.S. production might fall half a million barrels a day relative to expectations,”
Demand for oil is rising. Reserves are getting depleted. That means new discoveries of supplies need to be made. And that exploration won’t happen until prices are at a level that makes it worthwhile.
If oil prices stay at their current levels, then supply will peak before demand does, he said. That’s even as the car industry transitions to electric vehicles, shifting away from fossil fuels.
In his view, oil demand will peak sometime between 2027 and 2035 — further out than most analysts expect.
“Today we have 100 billion barrels less in reserves than 10 years ago,” he said. “If we don’t discover new oil, every year [reserves] will decline 3% a year, which means over 10 years you lose 30% of your reserves.”
“We think we need $100 oil to mitigate declines through 2030,”.
Taking advantage of the low oil prices, China increased its Strategic Petroleum Reserve (SPR) by almost 14 percent between June 2016 and June 2017.
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