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Weekly Fundamentals - Major Oil Agencies Project Higher US Production Next Year Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Sun Dec 17 17 06:23 ET

In the monthly market updates released by the three major oil agencies, The US EIA revised higher its global demand forecasts modestly for this and next years. It currently expects demand to increase +1.4 M bpd to 98.34M bpd in 2017 from a year ago. This marks a +0.13M bpd upgrade from November's forecast. For 2018, the EIA projects demand to increase further to 99.96M bpd, marking a +0.09M bpd upgrade from November's estimate. The OPEC maintained the demand forecasts unchanged at 96.9M bpd for 2017 and 98.5M bpd for 2018. The Paris-based IEA also kept its demand forecasts largely unchanged at 97.6M bpd and 98.9M bpd for 2017 and 2018 respectively.

On the supply side of the equation, IEA and OPEC have more divided views, though. The IEA forecasts non-OPEC output would increase +0.6M bpd to 58M bpd this year, followed by a +1.6M bpd rise to 59.6M bpd in 2018. The agency cited rising US shale production as the key reason for the increase in production. As it suggested, "2018 might not be quite so happy for OPEC producers". The pickup in drilling activity and well completion rates signaled that higher US production to come in a few months. As such, the IEA raised its forecasts for US output growth to +0.39M bpd for 2017 and +0.87M bpd for 2018. Concerning the world supply as a whole, the IEA expects surplus in the first half could be 0.2M bpd before reverting to a deficit of about 0.2M bpd in the second half, "leaving 2018 as a whole showing a closely balanced market".

OPEC expects non-OPEC supply to rise +0.8M bpd to 57.8M bpd in 2017 and then by +1M bpd to 58.8 in 2018. The cartel expects US oil supply to grow by +0.61M bpd and +1.05M in 2017 and 2018 respectively. Meanwhile, OPEC noted that "higher output from Canada, due to already sanctioned oil sands projects, will also contribute to next year's growth".

Crude Oil

Crude oil prices fell last week, despite bouncing briefly after the news of the shutdown of North Sea Forties pipeline system. WTI-Brent crude spread widened to a one-month on Monday after the news but it then got narrow gradually. Repair of the Forties pipeline system would continue until January, indicating that as much as 0.4M bpd of UK oil production is disruption. ICE Brent crude oil represents oil extracted from the North Sea and comprises Brent Blend, Forties Blend, Oseberg and Ekofisk crudes (BFOE). The current shutdown suggests that one of four streams that serve as the physical benchmark for ICE Brent futures is removed.

Natural Gas

UK's natural gas prices were also supported (rising to highest level in 4 years) by the closure of the system. This was in contrast with the decline in US natural gas prices. The Nymex contract tumbled -5.77% last week with almost half of the losses was made on Friday. This was despite the withdrawal in US storage last week. The EIA reported that gas storage fell -69 bcf to 3 626 bcf in the week ended December 8, from 3 695 bcf in the previous week. Stocks were -201 bcf less than the same period last year and -27 bcf below the five-year average of 3 653 bcf. Separately, Baker Hughes reported that the number of gas rigs stayed added +3 units to 183 in the week ended December 15. In terms of drilling types, directional rigs slipped -2 units to 69, horizontal rigs stayed added +5 units to 801 and vertical rigs slipped -4 units to 60. Together with the 4-unit decline in oil rigs, the total number of rigs slid -1 unit to 930 for the week.


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