IEA Wobbles on Impact of OPEC Cuts, Citing Growing US Production

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In its monthly Oil Market Report for December released Thursday morning, the International Energy Agency (IEA) said that global crude supplies dropped by 360,000 barrels a day to total 101.1 million barrels a day in November. Lower production from Russian, Canada and the North Sea were the culprits.

According to the IEA, the United States is now the world leader in crude oil production. Three countries — the United States, Russia and Saudi Arabia — account for about 40% of global production. Daily U.S. production now tops 11.5 million barrels and the U.S. Energy Information Administration (EIA) expects domestic production to average 10.9 million barrels a day this year, rising to a 12.1 million average in 2019.

The IEA’s projection for 2018 global demand growth was unchanged month over month at 1.3 million barrels a day, and the growth forecast for 2019 also remained unchanged at 1.4 million barrels a day. The agency said that lower prices are being offset by slowing economic growth, a stronger dollar and falling production estimates from some producers, such as Venezuela.

Total OPEC production rose by 100,000 barrels a day in November to total 33.03 million barrels a day, with Saudi Arabia and the United Arab Emirates posting record highs. In the OPEC monthly oil market report released on Wednesday, Saudi Arabia reported production growth in November of 450,000 barrels a day. The IEA’s estimate is a somewhat more modest increase of 410,000 barrels a day.

The 1.2 million barrel a day production cut agreed to last week by Organisation of the Petroleum Exporting Countries and its partners (OPEC+) in an effort to boost the market price for crude. The IEA noted that Brent crude, the international benchmark, appears to have found a floor at around $60 a barrel, far below the $86 a barrel price in early October. Will the OPEC+ agreement raise prices? The IEA offers this bromide:

Time will tell how effective the new production agreement will be in re-balancing the oil market. The next meeting of the Vienna Agreement countries takes place in April, and we hope that the intervening period is less volatile than has recently been the case.

One can’t blame the IEA for being unwilling to make a prediction on what the oil market will look like in April. There are too many moving parts in the oil market, and crystal-ball gazing is not IEA’s strong suit anyway.

The EIA on Tuesday revised its forecast for 2019 crude prices. The agency expects Brent to average $61 a barrel next year while West Texas Intermediate (WTI) crude, the U.S. benchmark price, is now forecast to average $54 a barrel in 2019. For this year, Brent is forecast to average $71 a barrel and the WTI average is forecast at $64 a barrel.

The IEA report notes the dramatic drop in U.S. imports of crude oil, noting that for the week ending November 30, the United States was a net exporter of crude oil and refined products for the first time since at least 1991. It was only a one-week blip, however, as U.S. imports exceeded exports last week. So far this year, U.S. net imports have averaged 3.1 million barrels a day. Ten years ago, that number was 11.1 million barrels a day.

Early Thursday morning, WTI crude for January delivery traded at $50.61 a barrel, down about 1% compared with Wednesday’s closing price of $51.15. Brent crude for February delivery traded down about 0.8% at $59.62 a barrel in London.

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