Update: The IEA report has impact prices - as would be expected - sending WTI back below the crucial support level of $63 once again...
With WTI Futures net long positioning at extreme longs, one wonders if $63 can hold.
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Overnight, the International Energy Agency became the latest entity to recognize that 2018 is shaping up to be a pivotal year for energy production in US shale fields, and a showdown between OPEC and non-OPEC producers, namely those in the US.
According to the latest IEA report, US shale output is poised for "explosive" growth in 2018 as WTI trades at its strongest level since the summer of 2015, which in turn will unleash pent up US output, potentially leading to a sharp oversupply of black gold,
As Bloomberg notes, the IEA's forecast supports OPEC's own projections: As we pointed out yesterday, the cartel also expects US production to ramp up in 2018 as shale producers - much more lean and efficient and significantly delevered after the 2015/2016 "episode" - unleash output as oil price continue to rise well above the generally accepted shale breakevens in the low $50s.
The IEA boosted its forecasts for non-OPEC supply growth this year by 100,000 barrels to 1.7 million barrels a day compared with last month’s report, modestly higher than OPEC's projections. It also warned 2018 could be a “volatile” year as Venezuela's energy industry teeters on the brink of collapse.
Both OPEC and IEA expect Venezuela's difficulties to continue after Latin America's socialist paradise brooked the biggest unplanned production decline of 2017.
“The big 2018 supply story is unfolding fast in the Americas,” the IEA said in its monthly report. “Explosive growth in the U.S. and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico.”
"Given Venezuela’s astonishing debt and deteriorating oil network, it is possible that declines this year will be even steeper than the 270,000 barrels a day in 2017," the report said. The country’s output last year was 1.97 million barrels a day, the lowest in nearly 30 years."
"Yet, the IEA doesn’t see a “clear sign yet of OPEC turning up the taps to cool down oil’s rally” to “compensate for a precipitous drop in supply from Venezuela."
Offsetting the Caracas crash, the agency raised its forecast for U.S. oil production growth this year by 240,000 barrels a day to 1.35 million barrels. At this rate, US crude output is on track to surpass oil giants Saudi Arabia and rival Russia in the not too distant future.
WTI and Brent traded lower Friday after the DoE inventory data Thursday evening and the two oil market reports cited above.
With oil prices on the rise, OPEC and its non-OPEC partners are again meeting in Oman to review their strategy for clearing the global oil glut amid pervasive doubts about the efficacy of the bloc's production cuts. Ministers from the United Arab Emirates, Iraq and Kuwait have said the deal needs to continue. Russia’s Energy Minister Alexander Novak has said talks this weekend could hammer out a plan for gradually retiring the supply cuts after the agreement concludes at the end of 2018.
Meanwhile, US tech innovation in the shale space is making US companies increasingly more competitive, pushing breakeven prices lower by the day, and stealing increasingly more market share from OPEC - which is desperate for higher oil prices to replenish plunging state reserves - with every passing day.