Growth in global demand slumped to a two-year low of 800,000 b/d in the third quarter, upsetting the fine calculus of supply and demand. The glut is now likely to persist until mid-2017, and this will be extremely painful for Nigeria, Algeria, Angola, Venezuela, and Iraq.
OPEC is still adding supply into a depressed global market. Both Iran and Saudi Arabia and have added 1m b/d each over the last two years, more than offsetting the 1.4m b/d fall in other parts of the world.
The Iranians have lifted exports more quickly than expected to their pre-sanctions level of 2.2m b/d, though output has leveled off over the last four months . It is clear that this one-off effect is largely exhausted.
The Saudis have ramped up their giant Wasit gas plant, freeing 215,000 b/d of output that was being used for power. But the bigger picture is that the Kingdom is sticking to its master plan to kill off high-cost projects in the Arctic, in African deep waters, in the Canadian oil sands, and Venezuela’s Orinoco basin.
Saudi Arabia has largely given up trying to knock out the US shale industry, reluctantly accepting that it will have to live with this troublesome upstart. North America’s frackers are becoming low-cost producers and are tough opponents, able to survive and thrive at $40 to $50 a barrel due to leaps in technology.