Crude Oil Rally Continues

The 14 members of the Organization of the Petroleum Exporting Countries (OPEC) produced a total of 32.39 million barrels of oil a day in February, according to the latest report from S&P Global Platts.

Choked pipelines means Canadian heavy oil benchmark Western Canada Select is now trading at a $31 per barrel discount against the West Texas Intermediate U.S. crude oil benchmark, compared to $12 at the same time past year, according to Petroleum Services Association of Canada data.

Adding to the downward pressure on crude prices for the week was gasoline stockpiles that rose by 2.5 million barrels for the week. China's oil imports are poised to exceed 10 million barrels per day and top the old import record, set by the USA, in 2022, IEA Executive Director Fatih Birol said on Monday.

Opec has been dealing with USA shale for nearly a decade now.

If OPEC + Russia's production agreement comes to an end in a disorderly fashion before it expires at the end of 2018, oil supplies could come back to the market faster than anticipated and reignite the supply glut that drove prices down in the first place.

"Shale oil, I don't know how we are going to live together", former Opec Secretary-General Abdalla Salem El-Badri told U.S. oilmen in 2016. The EIA expects next year's United States production to average 11.3 million bpd, the report said. But despite dinner invitations and behind-closed-doors conversations, shale continues to increase output and grab market share.

Traders said oil prices were also weighed down by a reported rise in U.S. crude oil inventories. But for the cartel, shale remains as intractable as in the past.

In the United States, fuel-economy standards for passenger cars are seen curbing gasoline demand, but growth should come from the petrochemical sector, now thriving because of low-priced ethane.

In part, Opec created its own nemesis. Opec is left with some options and the law of diminishing returns; the markets have priced in the cartel's supply-cut policy and it now appears to have short legs, given USA shale's sprint forward.

Declining oil and gas costs have helped producers, but researchers said investments outside the United States are necessary to spur supplies after 2020.

The world is in need of a stable oil market with price equilibrium.


Due to sheer volume and geography, however, the Middle East will remain the most critical region in the world for oil resources, and Saudi Arabia will remain the biggest and most important exporter "for many years to come", Birol said. OPEC cuts have paved the way for further shale supply which has filled the void left by OPEC.

Is crude oil really expensive today?

The producers' decision to curb investments in the short-term amid uncertain oil price environment could lead to a supply risk into the future, warned the IEA. "It was Opec", he said at a recent industry conference in London.

The shale boom is just booming.

OPEC, meanwhile, has shown no signs of moving to produce more, with output from members at a 10-month low.

That means demand growth of around 1.1 percent per year on average.

The South Texas port area anchored by Corpus Christi, home to a gaggle of proposed oil, petrochemical and liquefied natural gas (LNG) projects, "solidifies its position as the primary North American crude-oil outlet" over the five-year forecast, IEA said.

Top shale producers have told investors they expect double-digit production increases in 2018.

The US Energy Information Administration said in a monthly report it expected fourth-quarter US crude output to reach an average of 11.17 million bpd, up from its forecast a month ago of 11.04 million bpd. But as the shale revolution began and output of light tight oil rose, Nigerian imports fell.

As for USA demand, the EIA believes it will grow this year by 470,000 bpd, compared to its previous forecast of 450,000 bpd, and for next year it will rise by 360,000 bpd versus a previous forecast of 350,000 bpd.

  • Zachary Reyes