Crude: Balance teeter-totter

July 13, 2018 08:42 AM
Daily Energy Market Analysis

Expect more crude oil price volatility as the global oil market can flip from a global supply surplus to a global supply deficit at the drop of a hat. The market is trying to assess whether more sources of oil will get us to the point where daily global oil production is once again ahead of our daily consumption. So far it has not. 

Oil prices had stayed up a little longer -- its seasonal peak point on supply deficits was due to soaring U.S. oil demand along with falling production from many OPEC Countries. Venezuela, of course, is in shambles. Libya’s political issues caused a major loss of supply and trying to guess whether Saudi Arabia and Russia can offset the loss of Iranian supply. The report that Saudi Arabia had raised output by 500,000 barrels a day was encouraging but overall OPEC production increased less than that. Oil is hoping that we may see some 700,000 barrels from Libya down the road, but you had better not count all those barrels until they are pumped.

Syncrude, one of the largest producers of crude oil from Canada's oil sands, is going to come back online and reports that President Donald Trump is going to pressure Russia to raise output is also causing prices to drop. But once we see those increases global spare oil production capacity ravaged by trillions of dollars of Cap-X spending cuts leaves us vulnerable to future price spikes.

So, get ready for some more rocking and rolling on prices. Even though more oil will help ease prices short term, the balance between daily production and global demand is too tight to be ignored and eventually will demand higher oil prices. While the next few weeks will be crazy, our beginning of the year target of above $80 a barrel remains firmly in place.

Fiscally responsible, Iran is calling out Trump claiming that a rise in oil prices caused by the United States’ sanctions policies will hurt economic growth in China, Europe and other consumers. Iran, the former oil price hawk, all of a sudden is worried about rising oil prices. In the meantime, U.S. crude oil exports to India hit a record in June and so far this year are almost double last year’s total as the Asian nation’s refiners move to replace supplies from Iran and Venezuela in a win for the Trump administration, according to Reuters.  

Wild oil volatility as the market is trying to balance the fact of an increase in OPEC production, along with oil returning from Canada and Libya, against the fact that spare oil production capacity is down to fumes. Iran says U.S.-caused oil spike will slow growth, add to that, the tariff impact is taking off some bullish heat as there are hopes that more oil can tip the global oil balance back into a slight surplus versus the supply deficit the world is in today. 

 Go Frackers! Dry natural gas production in the Lower 48 hits record 81 Bcf/d!!


About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.