Rising Supply Will Keep Oil Prices Rangebound
Rising oil production from various parts of the globe could keep oil prices “range-bound” for the rest of this year.
During the second quarter, fears of supply shortages began to mount, as OPEC disruptions combined with strong demand and shrinking inventories to push prices up significantly.
More recently, concerns have focused on weak demand, driven by a strong dollar, cracks in emerging markets (punctuated by the currency crisis in Turkey), and a weakening macroeconomic picture globally.
But additional bearish concerns could soon come from the supply side, a notable turnaround as the supply picture has been a bullish factor for much of this year. Market analysts grew concerned about a supply crunch a few months ago, but the outlook is now shaping up to be one of, if not abundance, then maybe “adequate” supply.
Supply outages from non-OPEC countries are actually at a 15-month high right now at 730,000 bpd. However, much of that will be resolved soon with Canada’s Syncrude facility bringing production back online. Also, a new agreement between Sudan and South Sudan could see higher output levels there, according to Bank of America Merrill Lynch (BofAML). Meanwhile, production increases are expected in Canada, Brazil and the U.S., the three countries that continue to drive up output outside of OPEC. Altogether, the production increases will add new supply in the second half of 2018, “taming upside pressures on Brent crude oil prices,” BofAML wrote in a note.
The shale industry could face some infrastructure headwinds in the Permian, but so far that has not made a huge dent in production forecasts. In fact, U.S. shale companies are increasing spending this year. According to Rystad Energy, in the second quarter, a selection of 33 shale companies announced spending increases of a combined 8 percent relative to initial spending guidance, an additional $3.7 billion in spending.
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