Friday, 17 November, 2017

Oil price drops more than US$1on IEA warning of shrinking demand

Oil markets cautious as OPEC cuts are met by rising US output Crude oil at $60/bbl not the 'new normal' - IEA
Laurie Berry | 14 November, 2017, 20:38

The dramatic shifts envisioned by the IEA in its World Energy Outlook would transform the US from an energy importer into a major player in global markets capable of producing 30 million barrels of oil and gas a day by 2025.

Oil producers who signed up to a landmark production cut agreement mostly stuck to the deal, with the compliance rate at 96 percent in October, and 87 percent for the year to date, the IEA also said.

But that's where the good news ends for the Canadian oilpatch. "This is a continuation of the strong demand growth we are seeing in our short term oil market analysis", the report said.

Some analysts even predict that with oil demand declining as EVs set to replace conventional fuel vehicles, oil price could plunge to as low as $10 a barrel over the next six to eight years.

"Yet this is precisely what is happening as a result of the USA shale revolution - both for oil and for natural gas", the IEA said.

But the price crash had another effect: it forced a wave of innovation that has improved shale producers' productivity and efficiency.

While the US exported 100 billion cubic metres of Canadian gas in 2005, that figure fell by over a fifth in 2016. Asian countries will become the biggest net importers of oil and gas, taking in 70 percent of imports by 2040 as their economies expand at a fast clip. "We project a continuation of these trends: imports from Canada keep falling..." But the expected increase would put the USA further into uncharted territory.

Myllyvirta said worldwide targets to curb global warming and reduce deaths from air pollution nevertheless require a greater commitment to renewable energy sources.

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"Asia's growing gas import requirements are largely met by LNG (by 2040), with exports from the USA accelerating a shift towards a more flexible, liquid global market", the IEA said.

For all of 2017, total demand is now forecast at 97.7 million barrels a day, up by 1.5 million barrels a day (1.6%) compared to 2016.

"Canada is well placed to export oil to China, although this is dependent on the construction of additional export capacity to bring inland production to the Pacific coast", the IEA said.

"The U.S. [shale] oil industry avoided the blow by morphing into a leaner, more agile version of its former self; it has since proved remarkably resilient to lower prices", the IEA said.

This forecast is down 50,000 bpd from the last one.

The U.S. shale surge could also mean an era of lower-for-longer oil prices.

Crude has climbed lately to a two-year high around $57 USA a barrel in trading in NY, although it is not seen making much larger gains due to rising U.S. output.

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