Compiled by the FUELSNews Editorial Team
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Global Inventories Are Higher than We Realized
OPEC’s cuts were done with the goal of reducing global inventories to 5-yr averages. The IEA just made that goal much more difficult. Outside of the U.S. and some other OECD nations, most national inventories have to be calculated by comparing supply, demand, imports, and exports. With the IEA’s reduction in estimated consumption in 2015-2018, the amount of oil in global storage just got much higher, making OPEC’s work much more difficult. Of course, physical stocks didn’t change following the report – just estimates of how much oil was in those stocks.
In the U.S. and other OECD nations, stocks are extremely visible, meaning that the IEA’s revisions do not affect historical inventory numbers in those countries. The sudden surge in perceived oil stocks caused the drop-off in prices last week.
What Else Did the IEA Say?
The IEA publishes an Oil Market Report each month. Only subscribers can access the full report, but they do offer a free summary. This month, besides showing non-OECD demand being 330 kbpd lower than expected for the last 2 years, the report highlighted an expected 1.5 MMbpd growth in global demand. At the same time, they show global oil supply rising 520 kbpd in July compared to June, the third monthly increase. OPEC’s deal compliance fell from 77% to 75% in July, a new low for compliance this year.
U.S. Shale Producers Need $50 Crude to Break Even
To remain profitable, most shale producers need crude oil to be around $50/bbl, according to an analysis of Q2 earnings statements. While some producers have lower break evens, it appears that the industry as a whole needs prices above $50 to achieve sustainable growth.
Saudi Arabia’s Budget Deficit Shrinks
Saudi Arabia has been enjoying a narrowing budget deficit this year, as higher crude oil prices in response to the OPEC deal have helped to boost their profits. The Saudis have absorbed the majority of the cuts, which has limited their output, but higher prices have helped balance the budget. The country has also implemented fiscal cuts to reduce costs.