Brent and WTI futures are down some 25% since early-October, with the market flipping to contango.
Since May, according to IEA, the U.S. (+ 1 million b/d), Saudi Arabia (+ 0.62 million b/d), and Russia (+ 0.45 million b/d) have surged oil production to record highs.
Year-over-Year, global oil output in October was up 2.6 million b/d to 100.7 million b/d, with OPEC responsible for only 15% of that growth.
Additionally, despite asking the Saudis to up production to compensate for lost oil production from U.S. sanctions returning to Iran on November 5, the Trump administration has granted waivers to eight nations to allow more imports from Iran.
Rising stocks have been bearish as well. For the third quarter, OECD stocks rose 58.1 million bbl, the largest increase since 2015. A gain in September means that OECD stocks are now probably above the 5-year average.
Going into Thanksgiving, Americans have a lot to be thankful for: gasoline prices have been plummeting along with crude.
Yet, despite the drop in prices, oil producers are still in solid position to make money. So, stronger production is to be expected.
The low price environment since 2014 has forced companies to become more efficient and slash costs. This means that they can generally still be in the black today even when oil is just $50 per barrel. As such, with WTI called at $65 next year, EIA expects U.S. crude production to boom to another record of over 12 million b/d next year, compared to 9.4 million b/d to start 2018.
Although partner Russia is resisting calls to join renewed cuts, OPEC could cut supply by 1.4 million b/d to resist a glut.
Demand wise, just know that any slowdown in economic growth that would drag on demand would simply be offset by lower prices. IEA has maintained its projection that global demand will be up 1.3 million b/d this year and grow another 1.4 million b/d in 2019, on target with EIA modeling as well.
Although both IEA and EIA say that global oil supply will outpace demand in 2019, higher prices could be coming. Bullish support comes once current U.S. sanctions on Iranian oil once current U.S. waivers on Iranian crude expire, as well as lower Venezuelan output and uncertainly over Libya.
