OPEC Drowning Under Oil Supply Glut - OIR 231118

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Saturday, November 24, 2018 07:29 PM / Oilprice Intelligence Report


Oil prices collapsed on Friday, with WTI threatening to break the $50 mark and Brent falling below $60 for the first time in over a year.

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Friday, November 23, 2018

Brent fell below $60 per barrel during trading on Friday, a threshold not breached in over a year. WTI also saw a significant collapse, threatening to break below $50. The more oil prices fall, the more pressure OPEC+ will feel as its December 6 meeting approaches. 

Saudi production hit 11 mb/d. Saudi Arabia’s oil production 
hit 11 million barrels per day (mb/d) temporarily in November, although the full monthly average is expected to come in a bit lower than that. The 11 mb/d figure is a record high, but Riyadh plans to cut exports by 500,000 bpd in December. 

Permian surge expected next year. The inauguration of new oil pipelines in 2019 could unlock another wave of supply from the Permian basin. “The Permian will continue to grow and OPEC needs to learn to live with it,’’ said Mike Loya, the head of Vitol Group’s unit in the Americas, according to 
Bloomberg. The U.S. shale industry proved that it could weather pipeline bottlenecks this year, and even grow production at an incredible rate, which suggests that even more growth is forthcoming. Bloomberg says that shale executives talk about a coming “tsunami” or a “flooding of Biblical proportions,” with a lot of other hyperbolic adjectives being thrown around. U.S. total liquids production (both crude and natural gas liquids) could hit 17.4 mb/d by the end of next year, according to the EIA.

Does Saudi Arabia want to build a nuclear weapon? The New York Times 
exploresthe secret negotiations between the U.S. and Saudi Arabia over a nuclear power deal. The agreement would allow for the construction of nuclear reactors in Saudi Arabia, but Riyadh wants to control the fuel cycle, which raises questions about motivations for a weapons program. The recent murder of Saudi journalist Jamal Khashoggi, and the shifting explanations for what happened, also seriously undercuts the credibility of the Saudi regime. 

China’s gasoline exports drop to 13-month low. China’s gasoline 
exports in October fell to a 13-month low, a sign of an emerging glut in Asia. Inventories in Singapore are at a three-month high. At the same time, diesel exports in October jumped by 40 percent from a month earlier, as demand for middle distillates remains strong.  

BP begins production at Shetlands project. BP (NYSE: BP) 
began production at the second phase of its Clair field in the West of Shetland region this week. According to Wood Mackenzie, the West of Shetland region will be the only area of the North Sea zone that will see output grow through 2025. The mature North Sea has struggled to attract new investment, but some of the oil majors see the West of Shetland region as promising. “Clair is a massive oil accumulation with over 7 billion barrels of oil in place. That’s why we see Clair Ridge being out there for 40 years,” BP’s head of North Sea Ariel Flores told Reuters. The Clair project was seven years in the making, and production could hit 120,000 bpd. 

TransCanada halts construction on gas pipelines in Mexico. TransCanada (NYSE: TRP) 
suspended construction on several natural gas pipelines in Mexico, citing delays, cost overruns and alleged acts of extortion. “The social and legal uncertainty that prevails in this state makes the continuity of our investments impossible,” the company wrote in the statement published in Mexican newspapers. “On multiple occasions, social groups have made irrational requests that border on extortion and have performed acts outside the law.”

Libya expects OPEC exemption. Libya’s oil production has climbed significantly this year, but the war-torn North African nation 
still expects to be exempted from any production cut deal, despite the fact that the global oil market is starting to suffer from oversupply. Production recently hit 1.28 mb/d, a five-year high. Political progress also promises to clear the way for Libya to boost production. The National Oil Corp. hopes to raise production to 1.6 mb/d. 

Canada offshore outage due to storms. Canada’s eastern province of Newfoundland and Labrador saw four 
oil fields go offline due to a powerful storm last week, knocking a combined 150,000 bpd offline. Only one field has resumed operations. 

Trump administration to propose biofuels requirements. The Trump administration is set to propose blending requirements for the final three years of the U.S. Renewable Fuels Standard in January, which will set off another round of fighting between the ethanol and oil industries. The program, launched in 2007, expires in 2022. Reuters reports that the Trump administration is expected to propose blending requirements that lean more in favor of refiners, lowering the ethanol requirements that refiners need to use in their fuel mixes. “We are going to ask and we expect to see lower volumes across the board,” Derrick Morgan, a lobbyist for the American Fuel and Petrochemical Manufacturers, told 

Canada considers buying rail cars to move oil. The crisis in Canada’s oil industry is forcing the government into action. The federal government is considering a request from Alberta to share the cost of buying rail cars to move 120,000 bpd of oil from the province, according to 
Reuters. The pipeline bottleneck in Alberta has pushed prices for Western Canada Select (WCS) below $15 per barrel. 

Investment banks lower oil price forecast. A survey of investment banks by
 S&P Global Platts finds an average forecasted Brent price of $75.50 per barrel in 2019, down from $78.51 per barrel in October. The price is significantly higher than prevailing spot prices, and the price also is notable because of worries over the global economy. The investment banks expect OPEC+ to cut production to help erase the supply glut. “OPEC has indicated its determination not to let the market slip back into oversupply in 2019, and we think it has given a clear indication of its intention to defend prices in the $70s,” HSBC said in a note last week.

Philippines and China make progress on South China Sea. The Philippines and China 
struck an agreement that would move the two sides closer to cooperation on oil and gas exploration in the South China Sea.

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Previous Oilprice Intelligence Reports

1.       Oil Companies Lose $1 Trillion As Prices Crash - OIR 201118

2.      Oil Rebounds On Hopes Of OPEC and Action – OIR 171118

3.      Oil Prices Collapse To One-Year Lows – OIR 131118

4.      What’s Behind The Oil Price Crash? – OIR 091118

5.      Oil Prices Tumble On Iran Uncertainty – OIR 061118

6.      Soaring U.S. Oil Production Forces Prices Down – OIR 021118

7.      Oil Markets Uncertain As Iran Sanctions Loom – OIR 301018

8.     Oil Markets Gripped By Supply Glut Fears – OIR 271018

9.      Oil Prices Crash As Iran Fears Fade – OIR 231018

10.   Where Have The Oil Bulls Gone? – OIR 191018

11.   Oil Prices Under Pressure As U.S. Shale Supply Soars OIR 161018

12.   Oil Markets Take A Bearish Turn – OIR 121018

13.   Oil Prices Rise On Iran, Hurricane Outages – OIR 091018

14.   The Oil Price Rally Is Under Threat – OIR 051018

15.   Why Brent Broke $85 OIR 021018

16.   The $100 Oil Debate – OIR 280918


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