IC on Oil + comment
Chart: Oil's imbalance goes on
Against the renewed background chatter of an OPEC and Russia-brokered supply freeze, the International Energy Agency (IEA) released its monthly update on crude oil markets this week. The key takeaway, which has been apparent for some time, was that despite Brent crude remaining stuck below $50 a barrel, demand growth is slowing and supply is rising. In fact, the stimulus from two years of cheap prices appears to be fading, and third-quarter growth is now expected to be just 800,000 million barrels a day, a two-year low. Consequently, the IEA is not forecasting the market to rebalance until the end of next year.
Alex
The move from oil surplus to clear deficit is certainly taking a little longer than I expected it would.
At the end of the day when investment is cut it takes between 2 and 5 years for the impact to be felt in production terms, depending upon the type of oil field in question. The same 2 to 5 year delay also applies in the opposite direction of course when investment increases again.
The take away from the IEA report is not as clear as you suggest. Their initial bullet points and charts clearly show OPEC output increases failing to compensate for 'rest of the world' declines giving a total of a net 0.3 M b/d decline in output during August. The IEA's bar charts relating to projected supply and demand clearly show supply falling below demand in Q4 this year.
My impression is that even the IEA is confused by the rise in US inventories. Let me spell it out one more time: The US imports c1/3 of its oil consumption, it is a net importer of oil. Falls in US shale output have been replaced by an increase in US imports, this is a decision by the US to increase its imports and to keep its inventories at record high levels in order to average down to the lowest level possible its stock prices in anticipation of higher prices going forward. Record US inventories tell us little or nothing about global oil supply and demand, it only tells us that the US is a buyer of cheap oil.
Also, the oil price is not stuck below $50 in the sense of there being any permanency to this price band. The rising lows below $50 and the inevitability of the approaching supply crunch makes the oil price chart look ominous to my eyes. Yes I intend to make good money from the oil sector recovery, but I fear that nothing will be able to keep a lid on oil prices in time and few global economies now have the resource to cope with the inexorable recessionary impact of high oil prices.
Doug