Kemp: Mission Accomplished for OPEC as Oil Moves from Slump to Boom



Kemp: Mission Accomplished for OPEC as Oil Moves from Slump to Boom
The slump that characterized the oil market between the middle of 2014 and the middle of 2016 has been replaced by what looks like the beginning of a boom.

(John Kemp is a Reuters market analyst. The views expressed are his own)

Reuters

LONDON, April 24 (Reuters) - The slump that characterised the oil market between the middle of 2014 and the middle of 2016 has been replaced by what looks like the beginning of a boom.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 (https://tmsnrt.rs/2JkTIpK).

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.

LAGGING INDICATOR

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".


123

View Full Article

WHAT DO YOU THINK?


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

Kevin Thompson  |  May 01, 2018
How to ride this next wave if you work in the offshore industry. 1. Understand That the currency market has a 20 year cycle And currency dictates the price of commodities. The last spike we had in the currency market was mid to late 80s and we're currently on the uphill slope. We finished off the last downturn roughly in 2001-2002 and continued up from there. For some reason oil breaks off from the 20 year cycle and has its own 12 to 15 year cycle. I have not figured that one out yet. We will have a spike in the currency market peaking out in roughly 2022 so O&G industry will be near peak and will peak out around 2027 after a small dip, then it will bottom out around 2038-2040. 2. Dont concern yourself with a 401k. The company makes mony from employees participating in a 401k and unless you are a genius predictor you will not make much to retire on since its all invested in the stock market which i equate to going to the casino. Instead get a savings account in another country that has high rates like argentina at 17% and Ukraine at 21%. 3. DO NOT! unwisely blow your money on stupid sh*t you dont need or patry it away like we all (at least most of us) did in the last waves. A large percentage of us came from the military omthat had a salary in the poor people range so when we fell on 60+ salaries we didn't know what the hell to do with it and we partied way too much. I know that one resonates with a lot of you. 4. If you are young or old and single. Do not ever tell a woman that you work in the oil industry, a diver, etc... All they see is dollar signs. Tell them that you are a Merchant Mariner or some other type job that isnt big bucks but not too low like a walmart clerk. Ive seen it way to many times that women up and leave when the money went away and a woman gave me this advice. Catch this swill and ride it like a king yall.
Jamco  |  April 25, 2018
First, it was welcome China and the 1.3 billion