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Yet a Sheikh v/s Shale Narrative
Given the recalibration in global supply/demand balance, OPEC supply side measures have apparently yielded results. Supply disruption in Venezuela and Iranian sanctions have also driven the price trajectory higher. However, expanding US output poses a ceiling on the prices. As a case in point, US oil output has surged 3.3mbpd since December 2016. Although global markets have moved into a deficit, the supply shortfall is not that wide, thanks to growing self-reliance of world’s largest oil-consumer (US). Looking forward, we see Brent values peaking around US$75/bbl mark, with the overall trajectory consolidating in the familiar range of US$68-75/bbl. Needless to say, the short-term outlook hinges on how OPEC calls the shots on production accord, wherein we see much lower supply cuts later this year given the lure of relatively stable and higher prices.
Balanced Markets thus far
Thanks to curtailed output from OPEC and few non-OPEC players, oil markets were balanced last year and now in a deficit so far, this year. Energy Intelligence numbers show oil markets in a deficit of an average 0.6mbpd during first three months of 2019. Similarly, OECD inventories have declined by 238mn barrels since January 2017, with current levels below the 5yr average. Reaching the five-year average for OECD inventory mark was the primary objective of OPEC’s production accord. Meanwhile, markets have tightened, with modest WTI contango in the first 3 months of this year, while various global benchmark crudes are backwardated.
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