The oil market is facing a near supply deficit, despite the growing crises in the world economy and stagnant demand for oil. At the same time, the market is about to make a big profit next year.
The combination of the OPEC + cuts, the worsening disruptions in Iran and Venezuela, and a decline in the U.S. shale have all helped to tighten the balance. The second half of 2019 could see quite a significant pace in inventory development and erase some of the glut.
Indeed, the degree of uncertainty and risk of global oil supplies is staggering, and the large number and volume of production shutdowns around the world would historically send oil prices skyrocketing. OPEC holds 1
Iran's oil exports have fallen as low as 450,000 bpd, according to figures from July. U.S. However, the Foreign Ministry's special representative for Iran, Brian Hook, said that the export figure is probably down to around 100,000 bd, close to the "zero" level he is targeting. "We have effectively zeroed in on Iran's oil exports," Hook said during a New York press conference. "I cannot overstate the significance of this feat." Strong US sanctions have effectively blocked Iranian oil exports, but they have also suffered a huge human toll on the Iranian population, as the economy suffers and hospitals struggle to find adequate supplies.  The exact number of oil exports offered by Hook differs from other sources, but in any case, exports are down significantly from about 2.5 mb / d exports from the beginning of 2018.
Iranian President Hassan Rouhani warned that international waterways " can "not have the same security as before" if Iran's oil exports were completely forced to zero. "So unilateral pressure against Iran cannot be in their favor and will not guarantee their security in the region and the world," added Rouhani. Related: Hong Kong Billionaire Lose $ 20 Billion In Canadian Oil Sands
"Meanwhile, the short-term market balance has been tightened somewhat by the reduction in
offers from OPEC countries, Sa IEA said. "If the July level of OPEC crude oil production of 29.7 mb / d is maintained through 2019, the implied shareholding in 2H19 is 0.7 mb / d, also helped by a slower rate of non-OPEC production growth."
In short, the market is in a situation where supply is already in deficit, and geopolitical risks are putting even more barrels at risk, and yet the oil price is slowing down.
That's because although many analysts see a supply deficit, it appears In the first half of 2019, demand increased only by 0.6 mb / d, which was largely the result of a 0.5 mb / d increase in China. ette the demand for oil hardly at all.
U.S. Oil stocks fell in the recent release of plumbing, which appeared to provide some small evidence to support the notion that the market is in deficit and will continue to pull down inventory. However, the positive effect was affected by an increase in gasoline stocks. "The inventory report was hurt by unexpected increases in oil product stocks: gasoline inventories rose 312,000 barrels, while distillate stocks even grew 2.6 million barrels," Commerzbank said in a note. "Petrol stocks usually fall at this time of year due to high seasonal demand."
"Just a few weeks before the end of the summer driving season, gasoline stocks are a good 4% up from the long-term average – ie at a comfortable level," Commerzbank added. This has resulted in weaker-than-expected refining margins, which are actually at worst since February.
"Refineries are likely to respond by reducing the processing rate, which had increased again last week. A significant decline can be expected here in the coming weeks. The resulting lower refinery demand could cause US crude oil stocks to rise again," Commerzbank. Related: US Two "Drown The World" In Oil
Meanwhile, the decline in US shale can be interpreted in different ways. Lower oil prices, financial stress and skepticism for investors have forced This has started to translate into slower growth, contributing to a tighter oil market – or, at least, tighter than things could be In Texas, well penetration fell by 12 percent in the first seven months of 2019 compared to the same period the year before. Year-on-year production growth slowed to 1.65 mb / d in May, down from a peak of 2.1 mb / d in August 2018.
But production is still growing quite a bit. "We expect non-OEPC production growth (YOY) of 1.8 mb / d for 2019e and 1.9 mb / d for 2020. These are very high growth rates that are not OPEC in a historical
context, but significantly below that record high 2.8 mb / d growth (YOY) in 2018, "DNB Bank said in a report.
This year's supply growth of 1.8 mb / d from non-OPEC is in sharp contrast to the expected increase in demand of only 0.8 mb / d, according to DNB. OPEC + cuts have been required to prevent the oil market from a complete meltdown, including deeper than required cuts from Saudi Arabia and harsh US sanctions on Venezuela and Iran.
The market may see temporary setbacks in inventories over the coming months due to extraordinary supply cuts, but non-OPEC supply and growth and demand to stop means profits are still set to return in 2020.
By Nick Cunningham from Oilprice.com
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