Towards a rebalancing of the world oil market

Saudi Arabia recently pledged to reduce its crude oil exports for November. On the other hand, global demand for black gold is expected to increase by 1.45 million barrels per day this year, according to a report by the Organization of Petroleum Exporting Countries (OPEC). These two successive news have driven the oil reference price in New York (WTI on the NYMEX) up by almost 3.5% in two days and thus predicts a rebalancing of the world market.

After a long overabundance period, stakes were even more important in order to regulate the world production of black gold, especially for export. OPEC and other producing countries have committed to a production limitation agreement, which effectively reduced last month. Russia is part of this agreement, but not Libya and Nigeria, which have been exempted for political and security reasons. This is one of the reasons why total oil production increased from September to October.

Furthermore, Saudi Arabia announced on October 10th a reduction of its exports to the United States. This announcement raised the oil price in New York (WTI at NYMEX) by 1.34 USD, meaning the barrel is no 50.92 USD, as of october 10th.

Meanwhile, OPEC forecasts an increasing world demand of 1.45 million barrels per day (mbd) to reach a total of 96.80 mbd in 2017. Maintaining the oil price at a low level, as we just witnessed, foster growth and thus increases the demand. This increase is also linked to the good health of the world economy, which is expected to continue at 3.6% this year and 3.7% next year according to the IMF.

This news is expected to benefit the non-conventional oil sector in Canada. An increase in the price of oil would lead to a better profitability for shale oil and thus encourage production. However, an increase in price would incite exports and thus reduce the price set by the cartel.

These announcements bring some confidence back to the sector, but there are still many uncertainties. The increase in Iraq’s exports is one thing to follow, as it could threaten the cartel’s agreement,  by not being part of it.

Bibliography

Anthony Dipaola (Octobre 10, 2017). How Deep Will Saudi Cut Its Oil Output? To the Lowest Since 2015. Taken from Bloomberg : https://www.bloomberg.com/news/articles/2017-10-10/how-deep-will-saudi-cut-its-oil-output-to-the-lowest-since-2015

Grant Smith (Octobre 11, 2017). Libya Says Its Oil Recovery Is Struggling and OPEC Sympathizes. Taken from Bloomberg https://www.bloomberg.com/news/articles/2017-10-11/libya-says-its-oil-recovery-is-struggling-and-opec-sympathizes

Julia Simon (Octobre 11, 2017). Oil prices steady as Saudis pump more; OPEC sees strong demand. Taken from The Globe and Mail: https://beta.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/oil-rises-on-signs-of-tighter-market-but-2018-looks-more-uncertain/article36537311/

Agence France-Presse (Octobre 10, 2017). L’Arabie saoudite propulse le pétrole américain au-dessus de 50 $. Taken from La Presse: http://affaires.lapresse.ca/economie/energie-et-ressources/201710/10/01-5139468-larabie-saoudite-propulse-le-petrole-americain-au-dessus-de-50-.php

Agence France-Presse (Octobre 11, 2017). Le pétrole soutenu par la vigueur de la demande mondiale. Taken from La Presse: http://affaires.lapresse.ca/economie/energie-et-ressources/201710/11/01-5139673-le-petrole-soutenu-par-la-vigueur-de-la-demande-mondiale.php

 

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