IEA's oil forecast puts U.S. in the driver's seat

In Houston Monday night, both sides had dinner on the sidelines of the CERAWeek by IHS Markit conference.

Crude oil futures were higher Tuesday morning ahead of United States oil inventories data. "We must challenge mistaken assumptions about the speed with which alternatives will penetrate markets". The energy group forecasts that the us will supply enough oil to meet 80 percent of the growing demand over the next three years, and Canada, Brazil and Norway will meet the rest. Lower oil prices reversed soaring US shale oil production, turning it from an annual increase of 1 million barrels/day or more to a decline of 0.5 mb/d. For 2019, the EIA is forecasting USA production to average 11.3 million barrels a day.

OPEC hasn't discussed "at this stage" prolonging the cuts beyond this year, Suhail Mohamed Al Mazrouei, the United Arab Emirates oil minister and OPEC's president, told Reuters on Sunday, saying lowering oil inventories is still the group's focus. Crude shipped overseas from the U.S. will soar to nearly 4 million barrels a day by the mid-2020s, rivaling shipments from Iraq and Canada, Wood Mackenzie said.

Last year, the IEA forecast USA shale production to grow by 1.4 million bpd by 2022 with oil prices of up to $60 a barrel and by up to 3 million barrels with oil at $80 a barrel. Ultimately, the US might not live up to the hype in the years ahead. "Let's say in 2017, 2018 we need 300 miles of pipeline, and the USA steel companies' maximum capacity could crank out 100 miles of pipe". This is lower than demand of 32.3 million bpd expected in 2018 and below the IEA's latest estimate of Opec's production of 32.16 million bpd. "It's not just a problem for OPEC, it's a problem for the entire industry", Emmanuel Kachikwu, the oil minister, said in Houston, although he did not provide specific details on what exactly OPEC producers were asking USA firms to do. If this size of a crude build "gets confirmed by the EIA, we'll probably have a few days of lower crude prices". Although there will be talks between USA shale producers and senior OPEC officials this week, the reality is that US producers are an ultra-independent group, and trying to get them to coordinate with other nations' producing companies would make herding cats look easy.

At the same time, experts predict the global economy to accelerate its growth this and next year, which will definitely increase the global demand for crude oil.

The price had eased closer to $65 in earlier trading, pressured by the International Energy Agency's (IEA) warning on Monday that U.S. oil output is set to surge over the coming five years. The IEA forecast firmly puts USA in the driver's seat in driving global oil production.

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.

  • Zachary Reyes