We are beginning to see the first real signs of the global oil markets moving rapidly back into balance. OPEC, which produces approximately 40 percent of the world’s oil supply, cannot meet future oil demand on their own.
Supporting data follows that supports the analysis that oil price spike may be close:
- On May 11th the U.S. Energy Information Administration (EIA) reported that U.S. crude oil production declined by 206,000 barrels per day over the six weeks ending May 5, 2016.
- U.S. crude oil inventories unexpectedly fell by 3.41 million barrels during the week ending May 6, 2016
- Gasoline inventories declined by 1.231 million barrels’=
- Distillate stockpiles fell by 1.647 million barrels
- The International Energy Agency (IEA) say the annual summer spike in demand for transportation fuels has begun.
- On Friday, May 13 an explosion closed a second Chevron facility in Nigeria, Africa’s biggest oil producer
- Exxon Mobil also reported on May 13 that a drilling rig damaged a pipeline, shutting off more production of crude. Nigeria’s oil production was already down 600,000 barrels per day before these two incidents, primarily the result of militant attacks.
- Latin American oil production is now down close to 500,000 bpd from year ago levels.
In conclusion…If history repeats itself, the demand spike will be even larger. In 2010, the final year of the last major oil price cycle, the IEA began the year forecasting a 1.0 million barrel per day increase that year. Actual demand growth was 3.3 million barrels per day. The forecast error made in 2010 was that IEA’s formula for calculating demand, did not consider the impact of lower fuel prices on demand. IEA may have made the same mistake this time around.