As of the time of this writing, oil prices are at their lowest point since OPEC agreed to decrease output back in November of 2016. Below are five online details that contribute to the recent spate of sell-offs, which could dictate whether crude oil can stay above $50 per barrel.
The US shale oil industry has undergone a resurgence, with oil prices rising above $50 per barrel. After a two-year contraction, the US Energy Information Administration projects that output will rise by 300,000 barrels per day this year, and it is expected to rise by 500,000 barrels per day next year. While these numbers are impressive, they only tell half of the story. The US oil industry has minimized costs during the downturn, and executives are promoting production gains that lead many to predict a more significant rebound.
Increased North American production poses a significant threat to OPEC. The cartel successfully increased prices after they agreed to supply cuts during November of last year, bringing other non-member countries on board. However, after an initial rally, prices went flat at just above $50 per barrel during the first part of 2017.
OPEC’s biggest short-term problem is that the United States’ inventory keeps on increasing. While analysts argue that stocks are tightening elsewhere, the United States has the best and most relevant data, which gives it a bigger influence on the market. The US is the world’s biggest oil user, making it the most important battleground between OPEC and shale oil.
After OPEC agreed to cut production, investors lined up to provide backing. However, because oil did not increase in price much this year, that position has become more difficult to defend.
In a complex supply picture, demand is easier to track. While the increase in electric car usage has led some of the industry’s biggest players to warn of future peak oil demand, others are skeptical. Analysts point out that the world’s conventional car fleet is expected to increase by 40 million per year, which should account for about 600,000 more barrels of oil being used per day. Increased usage in freight, planes and petrochemicals can also boost consumption. Oil is a very mature source of energy, and efficiency is continually improving. However, peak demand is still far away.