The latest monthly report published by the Organization of Petroleum Exporting Countries highlighted some interesting projections for the oil market outlook. According to OPEC, demand for oil is expected to rise by 1.51 million barrels per day in 2018, comparing favorably with the 1.26 million barrel daily increase forecast back in July. The vast majority of this gain in buying is anticipated from non-OECD countries, with China and India topping the list. Should either country fail to live up to expectations, supply growth could seriously impact prices over the longer-term.
While this report marked a significant revision of expectations, the other relevant aspect was the statistics pertaining to supply. With efforts ongoing to reduce the stockpile glut that originally brought prices substantially lower, OPEC’s aggregate production totaled 32.448 million barrels per day in November, beneath the 32.500 targeted by the cartel. Although it highlights the success in constricting output and getting member nations to comply, OPEC’s restraint has paved the way for swing production like US shale oil to thrive.
Looking back over the last few weeks, the major beneficiaries of the slow grind higher in oil prices has been American producers as they continue to activate drill rigs. Even after the disruptions from hurricane season, the rig count has risen for three straight weeks, climbing to 751 active rigs through December 8th. Furthermore, US production gains have not slowed, with output reaching a jaw dropping 9.707 million barrels per day, a new record for domestic drilling.
In fact, the IEA is expecting production to continue rising over time, a development that is supported in large part by higher oil prices. Despite OPEC’s best efforts to raise prices and reduce oversupply, their efforts have in fact bolstered their competitions' moves to expand market share and output. US inventories have gradually been declining, evidenced by the massive drawdowns recorded over the prior few weeks. However, with output set to continue expanding, the multi-year price highs so casually reached in November may very well prove to be the medium-term top absent a supply disruption.