OPEC’s Big Adventure

Can OPEC find love and happiness and balance in a world full of shale? The OPEC report is out. OPEC is getting ready to double down on production cuts as they raise their forecast for U.S. shale oil output. This is unprecedented for the cartel to not only comply with cuts but maybe extend them as U.S. shale producers continue to increase oil output. 

In the last OPEC status report, before their official May 25th meeting, the cartel raised their demand outlook, lowered the global supply outlook and made an appeal to U.S. shale oil producers. OPEC warned that oil production from non-members would increase 64 percent faster than previously forecast because of the increase is U.S. oil output. Still, the market has priced that in and it only slowed the oil market rise yesterday.

OPEC revised their estimate of world oil demand last year by 95.12 million barrels a day. For 2017, they say demand will increase by 1.27 million barrels a day near 96.38 million barrels per day. This demand will be driven by economic growth.

OPEC says that global economic growth will come in at 3.3% in 2017, compared to growth in 3.0% in 2016. OPEC in part is basing that on an increase in China growth that was somewhat in question earlier this week. OPEC revised higher Chinese growth to 6.3% from 6.5%. India’s the other big demand growth factor for oil is forecast economic growth at 7.0%. OPEC lowered their estimate for Non-OPEC oil supply in 2016. OPEC put said that total OECD commercial oil stocks fell in March to stand at 3,013 million barrels still 276 million barrels above the five-year average.

They raised the demand estimate for their own crude in 2016 to 31.8 million barrels a day which is 2.0 million barrels a day higher the previous year. This year demand for OPEC crude is projected at 31.9 million barrels a day which is 200,000 barrels higher than last year.

OPEC said that decreased stocks and an improving global economy were supporting oil demand, but that continued rebalancing in the oil market by year-end will require the collective efforts of all oil producers to increase market stability, including U.S. shale producers. Good luck with that.

Did you enjoy that price drop at the pump? Well it is probably over. Gasoline demand in the U.S. is set to take off. With the combination of summer blends and that false perception that U.S. gas demand had run out of gas, it’s setting the stage for a retail gas price rebound. Just in time for Memorial Day! I am sure you are shocked to hear that gas prices will head up before a major holiday.

Natural gas made a nice move as the Energy Information Administration (EIA) reported a smaller than expected increase of 45 bcf in supply and a disappointing 70 bcf dry gas production number. This is a real concern as the U.S.s exported record amounts of Nat gas, is consuming record amounts of Natural gas and struggling to increase production. The natural gas supply is now 13.9% below last year’s level and even as we are still 13.6% above the five-year average, it is a concern because our usage in rising faster that production. The EIA, in a special report reminded us of one of the reasons why.

The EIA said the generation fuel mix of electricity in the Northeast Census division of the United States has shifted dramatically over the past 10 years. In the nine Northeast states, natural gas nearly doubled its share of the region’s total generation to 41% in 2016, up from 23% in 2006. Coal-fired generation fell from 31% to 11% of generation over the same period. Nuclear-powered generation as a share of total generation remained relatively constant near 34%. Despite more than doubling over the same period the share of non-hydro-renewables remains relatively small. Overall, total generation in the region declined by 3% between 2006 and 2016.