Oil prices are on their march upwards as Gail Tverberg and others predicted. Couldn’t be anything to do with Peak Oil or the world economy, could it? Lol.
The media seem to have latched onto problems in Nigeria (with a six-month delay). Miraculously, disruptions to Canadian tar sands caused by the fires seem to have had no influence on prices.
But then I’m no expert.
Oil prices surge as Goldman reports supply deficit
16 May, 2016
Global crude benchmarks are trading at six-month highs after Goldman Sachs analysts said the market is now in supply shortage.
Brent crude prices grew to $49 per barrel during Monday's trading. West Texas Intermediate soared to over $47 per barrel, their highest level since November.
"The oil market has gone from nearing storage saturation to being in deficit much earlier than we expected," Goldman said.
“The market likely shifted into deficit in May, driven by both sustained strong demand as well as sharply declining production,” the bank added.
That prompted the bank to raise its US crude price forecast to $50 a barrel for the second half of 2016 from a $45-estimate in March.
The biggest contributor to Goldman-reported supply shortage was wildfires in Canada's Alberta Province. Among other significant shortfalls are in Nigeria, where militant attacks on oil facilities have squeezed crude exports.
In the US, oil production has contracted to 8.8 million barrels per day (pbd), 8.4 percent down from 2015 peaks, as the country’s crude sector is suffering from low prices.
Supply shortfalls around the world have totaled 3.75 million bpd, wiping the glut that slashed oil prices from $114 per barrel in 2014 to $28 this January, according to Goldman.
The bank has warned the 258-403 million bpd surplus could return in the first half of 2017.
At the same time, OPEC countries continue their struggle for market share, having pumped 32.44 million bpd in April, a 188,000-bpd increase from March.
Global oil reserves are also preventing a full price recovery, according to analysts.
"The inventory buffer may be preventing full price recovery and the market is rightly nervous about the sustainability of outages," said Morgan Stanley, as quoted by Reuters.
Here Are The Oil Market Disruptions That Are Sending Oil Soaring
16 May, 2016
The reason why oil has resumed its ascendant ways today is due to yet another focus, this time from the sellside, on the various disruptions in the oil market, following notes from Goldman, Bank of America, and Morgan Stanley according to which the millions in barrels of oil taken offline as a result of the Canada wildfire and persistent Nigerian supply problems will push the market into equilibrium much faster than originally expected.
To be sure, this is nothing new: the mainstream media has been pointing this out for weeks with Reuters highlighting the supply loss in a handy table just last Friday.
Still, now that the sellside is pushing for an even flatter oil strip - recall that Goldman's full note said that while the market may get into balance faster than expected, a surge in low-cost production by OPEC members will result in lower prices in 2017 - the market has no choice but to follow.
So for those who missed it, here is the visual representation of the current oil supply disruptions courtesy of Goldman.
Large supply disruptions have pushed production sharply lower since mid-March
Key planned and unplanned outages since mid-February (kb/d)
Key planned and unplanned outages since mid-February (kb/d)
This is what Goldman said:
The recent roll-over in production is the result of somewhat offsetting cross currents. (1) Production has rolled over faster than we had expected in China, India and non-OPEC Africa more than offset upside surprises in the US and the North Sea. (2) Transient but recurring disruptions have more than offset larger than expected Iran and Iraq production.And while some of the disruptions will stop such as maintenance, fires and strikes, some are likely systemic, for example in Nigeria, and we now expect production there will remain curtailed for the remainder of the year. Net, this leaves us expecting a sharp decline in 2Q output.
So with the Canadian disruption now contained, the fate of the "oil disruption rally" is now in the hands of Nigerian militants who are responsible for "systemic disruptions" taking about half a million barrels per day offline.
Finally, it is worth reminding what Goldman also said in its note last night, because while the press has focused on the near-term upside catalysts it appears to have forgotten the other side of what Goldman noted, namely the return of chronis oversupply at a time of all time high crude oil inventories.
The inflection phase of the oil market continues to deliver its share of surprises, with low prices driving disruptions in Nigeria, higher output in Iran and better demand. With each of these shifts significant in magnitude, the oil market has gone from nearing storage saturation to being in deficit much earlier than we expected and we are pulling forward our price forecast, with 2Q/2H16 WTI now $45/bbl and $50/bbl.
However, we expect that the return of some of these outages as well as higher Iran and Iraq production will more than offset lingering issues in Nigeria and our higher demand forecast. As a result, we now forecast a more gradual decline in inventories in 2H than previously and a return into surplus in 1Q17, with low-cost production continuing to grow in the New Oil Order. This leads us to lower our 2017 forecast with prices in 1Q17 at $45/bbl and only reaching $60/bbl by 4Q17.
We expect continued growth in low-cost producer output
Saudi Arabia, Kuwait, UAE, Iraq, Iran (crude) and Russia (oil) production (kb/d)
For now, the market only cares about the impact on spot, and as of this moment, WTI is up over 3% back to levels last seen in November of 2015.
Forget the Saudis, Nigeria's the Big Oil Worry
By Julian Lee
16 May, 2016
Drag your attention away from the Middle East for a moment. While policymakers have been focused on Saudi Arabia's oil market machinations, what really matters right now is happening 3,000 miles away in the Niger River delta.
The country that was, until recently, Africa's biggest crude producer is slipping back into chaos. A wave of attacks and accidents have hit infrastructure, taking Nigeria's output down to 20-year lows.
Nigeria's Output Woes
Oil prices are responding, rising to their highest in more than six months. Part of this is explained by the International Energy Agency lifting demand estimates this week. But taking both things together, it's easy to doubt whether current oil surpluses are sustainable.With no solution in sight to the problems that beset the delta's creeks and mangrove swamps, production from onshore and shallow-water oil fields looks vulnerable.
If the latest group of freedom fighters seeks to outdo its predecessors, then deepwater facilities may be at risk too.The Niger Delta Avengers have certainly been busy, forcing Shell's Forcados terminal to shut in about 250,000 barrels of daily exports; and breaching an offshore Chevron facility in the 160,000 barrels per day Escravos system.
In April, ENI had to declare force majeure -- letting it stop shipments without breaching contracts -- on exports of its Brass River grade after a pipeline fire.
It's hard to see any long-term let-up given Nigeria's record on fixing this problem. The previous wave of discontent, which hit a peak in 2009, only came to an end when President Yar'Adua offered amnesty, training programs and monthly cash payments to nearly 30,000 militants, at a yearly cost of about $500 million. Some leaders of the Movement for the Emancipation of the Niger Delta (MEND), the militant group, got lucrative security contracts.
But the failure to properly address local grievances means it was only a matter of time before another wave of angry young men took up the fight for a better deal for southern Nigeria. The crisis has been hastened by new president Muhammadu Buhari's termination of the ex-militants' security contracts and his seeking the arrest of former MEND leaders.
The Avengers now say they want independence for the Niger River delta.And it's not as if Nigeria's oil woes are limited to the militants.
Exxon had to declare force majeure on Qua Iboe exports after a drilling platform ran aground and ruptured a pipeline, while Shell did similar with Bonny Light exports after a leak from a pipeline feeding the terminal.
Nigeria's Export Streams
Four of the five largest streams are partly or totally suspended
Volumes based on 1Q16 loading programs. Excludes condensate streams.
In its latest report, the IEA assessed the world's need for OPEC crude this quarter at 31.9 million barrels a day, with Nigeria contributing 1.62 million to the group's 32.76 million output in April.
Petromatrix, an oil research group, believes Nigerian production may now be little more than 1 million barrels per day. It won't take much more disruption to tip the global oil balance from surplus to deficit
Read the latest from Gail Tverberg
For a long time, a common assumption has been that the world will eventually “run out” of oil and other non-renewable resources. Instead, we seem to be running into surpluses and low prices. What is going on that was missed by M. King Hubbert, Harold Hotelling, and by the popular understanding of supply and demand?