The resist movement hit OPEC. Oil prices hit a four-year high as OPEC resists President Donald Trump’s call for more oil. The oil market is starting to understand what the Energy Report has been warning about for years. Underinvestment in the energy space has put us behind the demand curve and global production is going to struggle to keep up. While the market is focused today on the fact that OPEC failed to raise oil production at this weekend’s meeting in Algeria, and Iran blaming the U.S. for last week’s attack on a military parade, the real reason they refused to increase could be that they don’t have enough spare capacity to bring on line quickly.
In fact, last month OPEC rose by only 41,000 barrels per day (bpd) to 32.3 million bpd in July while Saudi Arabia's production fell by 150,000 bpd, surprising many who thought that Saudi Arabia was ready to ramp up and flood the market. Yet, now many are wondering if the Saudis have any significant spare production capacity to speak of. Dow Jones reported that the Saudis are running low on Arab Light Crude for October allocations. The “Highly-prized Arab Light is getting more demand than expected. In fact, this signals that the Saudis cant pump much more than 11 million barrels per day. Still the Saudis put up a brave face. Saudi Energy Minister Khalid Al-Falih said that “Our plan is to meet demand. The reason Saudi Arabia didn’t increase more is because all of our customers are receiving all of the barrels they want.” While he says that they plan to increase output in September and October, they are not committing to any specific amount. OPEC’s inaction this weekend is forcing the reality side equations to set in. Instead of the mantra “lower for longer,” now we must get used to the fact that oil is in a new Super Cycle.
The AP reports that Iran's president on Sunday accused an unnamed U.S.-allied country in the Persian Gulf of being behind a terror attack on a military parade that killed 25 people and wounded 60, further raising regional tensions. Hassan Rouhani's comments came as Iran's Foreign Ministry also summoned Western diplomats over them allegedly providing havens for the Arab separatists who claimed Saturday's attacks in the southwestern city of Ahvaz.
Fox News is reporting that Iran continues to wreak havoc in the Middle East by allowing Al Qaeda to maintain a "facilitation base" within the Islamic Republic's borders, according to the U.S. State Department’s annual Country Reports on Terrorism.
The report, released this week, reinforces assessments published in years past that not only does Iran enable Al Qaeda to conduct global operations from within its borders, but also remains "unwilling to bring to justice to senior Al Qaeda members residing in Iran and has refused to publicly identify the members in its custody.”
U.S. oil supplies, that are already at the lowest level since 2015, will more than likely fall again by 3 million barrels this week. That will lead to a build in products of about 2 million barrels in both gas and distillate.
Our oil target for the end of the year remains unchanged at $84 a barrel. In the beginning of the year we were among the highest price predictions but many now are adjusting their price projection to get in line with ours or in some cases even higher. Yet, while many think this oil bull is a recent phenomenon this bull market really started years ago.
The Wall Street Journal is reporting that U.S. shale oil production will peak by the late 2020s, triggering renewed demand for OPEC crude after an expected decline and stagnation, the oil cartel said Sunday. In its latest forecast on the global oil landscape, the Organization of the Petroleum Exporting Countries said it expects U.S. shale growth to “slow significantly” after 2023, before peaking at 14.3 million barrels a day between 2027 and 2028. Output should then fall to an average of 12.1 million barrels a day by 2040, according to OPEC.
The use of hydraulic fracturing in the U.S. to drill for oil in shale rock—known as fracking—has dramatically reshaped the face of the global oil industry over the past decade, rivaling OPEC for market share. Shale was largely behind a glut of American oil that flooded the market over four years ago, leading oil prices to fall to $30 a barrel from more than a $100 a barrel in late 2014.
In 2018, U.S. shale production is growing faster than it did during the boom years of 2011 to 2014, the International Energy Agency said earlier this year. The IEA has forecasted that U.S. shale oil production will plateau in the late 2020s, while total non-OPEC production should decline. OPEC projects that “the strongest annual increases are seen in the near-term, in which total U.S. tight oil increases by an average of 1.4 million barrels a day” annually from this year to 2020.
Trilby Lundberg reports that the average U.S. price of regular-grade gasoline has dropped a penny per gallon over the past two weeks, to $2.90. That is 28 cents higher than at this time last year.