Displaying items by tag: glut

(Houston)

The oil market has had a great year. US oil prices have risen from $45 a year ago to over $70 recently. Big oil producers have successfully worked together to constrain output in an effort to boost prices. However, that condition may be set to change. OPEC has already warned that it may have to increase supply for its member producers, and now the country has a meeting in Vienna next week where that eventuality will likely be decided. One portfolio manager put it this way, saying “OPEC countries will be contemplating production levels that could potentially tip the supply/demand balance currently in place, leaving crude oil pricing susceptible to oversupply”.

FINSUM: We do not think the global cooperation with producers will last, as each wants to boost production as a way of increasing revenue.

(New York)

Until the market downturn over the last couple of weeks, the oil price had been rising strongly for a period of several months. OPEC’s strategy to cut supply to the market seemed to have balanced supply and demand, which boosted prices. However, one big beneficiary of the cuts was the US shale industry, which has been boosting output to the highest levels ever. This big surge might be the ultimate unwinding of the price rise, however, as US output is surging to levels not seen since oil was at $100 per barrel. This is likely to once again flood the market with supply, sending prices back downward.

FINSUM: We think this oil output growth is unsustainable, both because it will lead to oversupply, but also because it will eventually crack OPEC’s resolve to contain their own output (as the benefits are disproportionately flowing to the US).