Roughly 1.2m b/d of Canadian oil is poised to flow again as forest fires in Alberta are finally contained. Nigeria boosted production by 300,000 b/d to 1.9m in late June as the government edged towards a tentative truce with rebels in the Delta region.
Adam Longson from Morgan Stanley said the rebalancing would take a lot longer than previously assumed. “The markets are oversupplied well into 2017,” he said. Inventories in OECD states are a record 3,075m barrels and are still rising, albeit at a much slower pace than before.
JP Morgan said the creation of a national unity government in Libya could add an extra 400,000 b/d to global supply if the deal holds, some of it relatively quickly.
At the same time, the US shale industry has proved far more resilient than expected as it masters new drilling tricks and slashes costs. A recent report by consultants Wood Mackenzie estimated that prime shale fields at Eagle Ford and Wolfcamp in Texas can now make a profit below $40 a barrel.
The closely-watched rig count in the US has been rising for the last month, catching traders badly off guard. Frackers added 14 fresh rigs to 371 in the week to July 22 – mostly in the Permian basin in Texas. “We have reached the bottom of the cycle,” said Schlumberger’s chief executive Paal Kibsgaard.
This is happening as OPEC continues to nudge up output to a record 33.2m b/d in a fight for market share, with Iran already up by almost 1m b/d since February to pre-sanctions levels of 3.6m b/d.
Richard Mallinson from Energy Aspects said excess stock built up by refineries is the trigger for the latest slide in crude but this disguises an underlying shift in the market balance that could ultimately lead to a future supply crunch.
Output has slumped by 400,000 b/d in China over the last year, yet the country is stepping up purchases for its strategic petroleum reserve by roughly the same amount. The scissor effect of these opposing trends may be enough to flip the market from surplus to deficit before long. Mexico has lost a further 250,000 b/d as old fields are depleted.
“Global demand is quite healthy. We think the market will become increasingly tight, with prices in the $70s in 2017,” he said.
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