Opinion

Oil Prices Set to Fall in January – But Could 2018 See a Major Collapse?


There have been four major modern oil price collapses: 1986, 1998, 2008, and the most recent in 2014. Most market watchers agree that prices will fall in January 2018, but could we be on the cusp of another collapse? To spot the signs we need to go back to June 2014.

Between 2000 and 2008, oil prices saw an unprecedented spike, rising from under $25 per barrel to almost $150 per barrel. But prices then remained relatively stable until early 2014 when production began to increase at a dangerous rate.

One of the main drivers was fracking, which came of age that year. U.S. production to rise roughly 45%, and in the year to June, U.S. producers saw the largest volume increase since records began in 1900. Canadian production also rose 25% thanks to technological advances and higher pipeline throughput.

Together, Canada and the U.S. produced some five million more barrels each day than they did in 2010, and North American oil production grew 38% faster than total global demand. Meanwhile, Saudi Arabia, the biggest oil producer within OPEC, maintained their production at historically high levels.

In June 2014, prices began to fall, rapidly. The unusual surge in production, the unwillingness to throttle back and weaker than expected demand – especially from emerging nations including China and India – saw oil prices fall more than 40% in the back half of the year, bumping down to around $60 per barrel.

But are we heading this way again?

U.S. oil production has soared 16% since mid-2016 to 9.78 million barrels per day and in October U.S. crude exports rose to a record 2 million barrels per day. This means U.S. supply is now close to matching the levels of top producers Russia and Saudi Arabia, and, according to the International Energy Agency (IEA), will likely move oil markets into a supply surplus in the first half of 2018.

However, compliance with production cuts on the back of the most recent OPEC/non-OPEC producers' agreement is holding across the board, but there is a risk that compliance may drop especially for Iraq or Russia. If that happens then Saudi Arabia may well, as in 2014, opt to let prices fall.

But while OPEC and others have cut production, U.S. shale producers have not.

According to the IEA, crude production from shale is set to grow by 94,000 barrels a day in January, and U.S. oil output in 2018 will average 10 million barrels a day, compared with 9.2 million barrels a day this year. Total output from shale regions will top out at 6.4 million barrels a day next month, up more than 1 million barrels a day from January 2017. That would mark the highest annual average production on record.

In Europe, the Forties pipeline is set to comes back online and the likes of Rosneft show no signs of throttling back their ambitions. But the most worrying sign for prices must be the growing signs of a recession in overheated emerging economies such as China and also innovation in green technology. Chinese corporate debt is rising rapidly, almost doubling since 2007. It now stands at 166% GDP, and household debt rose 44% last year. Couple this with new protectionist policies in the U.S., overheated markets including the Bitcoin bubble, and we have a very dangerous situation indeed.



New service from OilVoice
Trip Shepherd is for companies who need to track their staff in areas of risk.
It's free to use, so we invite you to try it.

Visit source site

https://claydonenergypartners.com

Oil Price predictionscollapseUS ShaleForties PipelineOPECNon-OPEC Productionoil priceoil price collapseemerging marketsChina

More items from scottjohnson


Why is oil security suddenly a top priority in Africa?

Just this week, South Africa announced a new oil and gas policy is in the pipeline. This will be music to the ears of individuals involved in African energy and infrastructure such as Sebastian Wagner , Mzi Khumalo and Olusegun Okubanjo . But questions surely remain as to how the continent can t ...

Scott Johnson


Posted 10 days agoOpinion > Nigeriaenergy securitySub-Saharan Africa +2

Three reasons Africa will determine the oil price in the long term

Africa might only be home to just 4 percent of the world's oil supply but, as many of its oil-rich nations begin taking advantage of this natural resource, it's starting to have an impact on the price of crude oil. This uptick will be good news for the continent's high-profile investors and entrepre ...

Scott Johnson


Posted 1 month agoOpinion > Africamiddle classGeopolitics +4

On the way up: The trends that will impact oil in 2019

The price of oil has been on a bullish trend since the start of the year. This is despite a steep decline at the end of last year because of a significant US shale industry output, which pushed down prices. The prices have recovered at the start of this year because the market has bet that supply w ...

Scott Johnson


Posted 4 months agoOpinion > OilVenezuelaChina +5

3 Ways The Oil Industry Will Be Hit By the Iran Sanctions

Unilateral U.S. sanctions on Iran, which came into force this week, will hit the country hard, of that there can be no doubt. The sanctions affect trade in dollars, gold, steel and aluminium, and in November the restrictions will be extended to include Iran's oil trade . But what are the possible ...

Scott Johnson


Posted 11 months agoOpinion > Iraniran sanctionsSanctions +5

Are Family Firms in the Energy Sector Fueling the Future?

As Reuters has recently reported , oil production and prices worldwide are feeling the pinch. This gave me cause to reflect on whether family-owned businesses in the energy sector can step up to the plate and drive another generation of growth. Some of the world's largest and most successful ener ...

Scott Johnson


Posted 1 year agoOpinion > Koch IndustriesKinder MorganReliance Industries
All posts from scottjohnson