So Far, So Good? | Russell T. Rudy Energy LLC
“Rigzone” reports that the International Energy Agency (IEA) feels that the oil production cutback agreement between OPEC and 11 other producing nations has entered its “probation period.” Nevertheless, preliminary indications are encouraging. Markets are tightening, prices are rising and demand is expected to increase. This could be partially offset by increasing production from parties that did not participate in the accord, especially U. S. shale oil producers.
Crude oil inventories in the major industrialized countries continue to fall, although they still are about 300 million barrels above the 5 year average. If the parties to the cutback agreement live up to their commitments to cut production by almost 1.6 million barrels of oil per day (bopd), this trend will likely continue.
A decreasing global oil glut and anticipated production decreases have buoyed prices, at least for the time being, as markets wait to see if the agreed upon quotas are achieved. Another positive development is increasing consumption. The IEA now anticipates demand to grow by 1.3 million bopd this year. Demand growth so far this century has averaged 1.2 million bopd. This is a more bullish forecast for the IEA than was previously the case.
On the downside, as inventories fall and prices rise, U. S. shale producers are increasing output through increased drilling and operating efficiencies. The IEA observes “Whether it be shorter drilling times or larger amounts of oil produced per well, there is no doubt that the U. S. shale industry has emerged from the $30 a barrel oil world we lived in a year ago much leaner and fitter.”
In fact, the head of IEA, Fatih Birol, opined that he expects U. S. shale output to increase by as much as 500,000 bopd in 2017, which would be a new record. To put this in perspective, domestic shale production fell nearly 300,000 bopd in 2016.
The IEA concludes that the oil market will continue to tighten, prices will stabilize and inventories deplete if signatories to the cutback agreement abide by their quotas.
To read the article in its entirety, please go to http://www.rigzone.com/news/oil_gas/a/148182/IEA_OPEC_Output_Cuts_Under_Security_As_Market_Tightens/?all=HG2 .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
