Trends Shaping Today's Global Oil
Oil prices have risen for eight straight days, their longest such streak since February 2012. Yet, prices are still down 12-15% since the beginning of the year: "Enjoy that road trip! July 4th gas hasn't been this cheap in years." Jude Clemente from Forbes reviews the key trends driving the oil market today and in future in his article Five Trends Shaping Today's Global Oil. A somewhat important subject given that oil is and will remain the world's most vital source of energy, at about 35% of all needs. And "$30 Oil Could Spark Contagion In Energy Markets."
Every day, 1 in every 4 oil vehicles bought around the world are bought in China, a whopping 25 million bought each year. But on a personal consumption level, China is only at the beginning of its oil journey. For example, the average American still consumes 6-8 times more oil than the average Chinese.
China's oil future is unlimited: if the Chinese ever consume oil like we Americans, the world will need an additional 75 million b/d of oil, nearly an 80% expansion of today's entire global oil market - more than two more OPECs of new oil supply required.
For the U.S., the great news about sunken oil prices is that they forced our producers to become much more efficient, where considerable profit margins can be made even when prices are low. Clearly, OPEC and the friends that flooded the market to gain market share didn't foresee our shale progress. In reality, OPEC's goal to "wipe out U.S. shale oilers" only made them stronger.
U.S. crude oil production has actually dropped slightly in recent weeks, and our oil drillers lost two rigs last week - the first such loss in 24 weeks. But since 2008, our near double in crude oil production hasn't been a perfect fit for our refinery system (which is mostly configured to process heavier crudes from Mexico, Canada, Venezuela), so exports have surged (see my article here). The EIA has us producing a record 10 million b/d of crude next year.
Our shale oil boom has given us an excess supply of light oil (higher API numbers) to send to other nations. Now, well over half of our domestic crude supply is considered light. On the week of June 23, the U.S. exported 5.6 million b/d of crude and products, compared to 3.4 million b/d for the same week back in 2014.
OPEC and friends have agreed to extend their production cuts that started in January 2017, and will now run cuts until at least the first quarter of 2018. Unfortunately, it was just an extension of its 1.8 million b/d reduction, a decision that was already factored into the market (see my article here).
Yet in May, OPEC crude output was 32, 139 Thousand b/d, up from 31,963 Thousand b/d in the first quarter 2017, but down from 33,133 Thousand b/d in fourth quarter 2016. Exempt from oil production cuts, Libya and Nigeria have taken advantage, and in May accounted for all of OPEC's market unwanted gains.
Weighing down oil prices, U.S. crude inventories are simply way too high, surging to an all time high of 535 million barrels at the end of March 2017 (here) and continually signaling to traders that the world's largest oil market is vastly oversupplied. And hugely significant for the market: "Oil prices surged 2 percent as traders covered bets that oil prices will fall further and the market anticipated a drop in U.S. crude inventories," CNB.