Fuente y Autoría: RIGZONE – By Reuters – John Kemp
The slump that characterised the oil market between the middle of 2014 and the middle of 2016 has been replaced by what looks like the beginning of a boom.
Benchmark Brent prices have already risen by more than $45 per barrel or 170 percent from their cyclical trough in early 2016.
Front-month futures prices, at almost $75 per barrel, are now trading close to the inflation-adjusted average for the last price cycle, which started in 1998 and finished in 2016.
So far this year, futures prices have averaged nearly $68 per barrel, which is well above the post-1973 real average price of $50-$55.
Futures prices have shifted from a big contango during the slump into an increasingly wide backwardation since the middle of 2017, which is consistent with a shift from over-supply to under-supply
Global oil consumption is predicted to increase by more than 1.5 million barrels per day (bpd) in 2018, the fourth consecutive year of very strong growth.
Non-OPEC oil production is forecast to increase by 2.0 million bpd or more this year, mostly as a result of a large increase in U.S. shale plus other output increases from Canada, Brazil and Norway.
But with steep declines in output from OPEC member Venezuela as a result of unrest and mismanagement, and continued curbs on production by other OPEC and non-OPEC members, global production is failing to keep pace with consumption.
OECD inventories have dropped sharply and are now in line with the five-year average, eliminating the surplus of over 300 million barrels inherited from the slump.
If inventories are adjusted for the rise in consumption, which gives a more accurate picture of the market balance, stocks are now well below the five-year average and continue to tighten.
So on every indicator, from spot prices and spreads to consumption, production and inventories, the oil market is now well into the boom phase of the cycle.
But booms are always followed by slumps. If OPEC allows the oil market to tighten too much in 2018/19, it will create the conditions for the next downturn a few years later.
Senior OPEC officials insist the organisation’s work on rebalancing the market has not yet been completed and they resist the characterisation of “mission accomplished”.
In particular, they point to the relatively low level of investment in exploration and production to justify the need for continued production curbs and even higher prices.
But investment is a lagging indicator. Investment was slow to pick up during the early stages of the last boom (1998-2008) then proved stubbornly resilient in the first stages of the slump (2014-2016).
Lagging upstream investment is one of the principal causes of cyclical instability in the oil market and has been since the beginning of the modern petroleum industry.
If OPEC members wait for an acceleration of upstream investment before relaxing their production curbs, as ministers have indicated, they will almost certainly over-tighten the market in the meantime.
The oil market is already tight and the increasingly wide backwardation indicates traders expect it to become even tighter during the second half of the year, when oil consumption moves seasonally higher.
If OPEC maintains its current output curbs through December, the market is set to become exceptionally tight, which will push prices and spreads towards unstable levels.
OPEC ministers profess to be unconcerned about the impact on either supply or demand, but they have often misjudged market responses in the past.
The number of rigs drilling for oil in the United States has already resumed its upward trend over the last three weeks in response to higher prices, which will increase shale output even further by the end of 2018.
Consumption changes are harder to measure in real-time, and tend to lag behind changes in oil prices, but the rise in prices will restrain demand too, as it has always done during every previous period of rising prices.
Ver más de este articulo -Fuente y Autoría: RIGZONE – By Reuters – John Kemp