DECEMBER 13, 2018 – The U.S. might have been left out from the big summit between OPEC and non-OPEC producers in Vienna last week but the country’s influence over global oil markets is only going to get stronger, the International Energy Agency (IEA) stated in its latest report.
“While the U.S. was not present in Vienna, nobody could ignore its growing influence,” the IEA said in its December report, published Thursday. “Last week’s meeting reminded us that the Big Three of oil – Russia, Saudi Arabia and the United States – whose total liquids production now comprises about 40 percent of the global total, are the dominant players, ” the IEA said.
When OPEC and non-OPEC producers met last week in Vienna to hammer out a deal to cut their oil production there was an uninvited, but unavoidable, presence at the summit: The U.S.
President Trump has repeatedly criticized OPEC for its dominance over oil prices, at times asking (usually via Twitter) it to produce more oil and then telling the cartel to leave its production well alone. Iran joked last week that the U.S. wanted to join OPEC as it appeared keen to influence the meeting’s outcome.
The U.S. has become a dominant competitor in oil markets in its own right, however, and has taken a place among the world’s largest oil producers, thanks to its shale oil revolution.
Non-playing member
On the day OPEC ministers sat down to talk in Vienna last Thursday, the IEA noted that an important piece of data was published, noting that “according to the (U.S.) Energy Information Administration, in the week to 30 November the U.S. was a net exporter of crude and products for the first time since at least 1991.”
In 2018 to date, U.S. net imports have averaged 3.1 million barrels a day (mb/d). Ten years ago, just ahead of the shale revolution, the figure was 11.1 mb/d., the IEA said.
“As production grows inexorably, so will net imports decline and rising U.S. exports will provide competition in many markets, including to some of the countries meeting in Vienna last week.”
The IEA noted that while cooperation between Russia and Saudi Arabia is now “the basis of production management” with these two countries having a large capacity to swing output one way or the other, the U.S. is the third, “non-playing member” of what it called the Big Three.
“The United States … is now the world’s biggest crude oil producer …(it) is also the world’s biggest consumer and lower prices are welcome, although its producers will want to see them stay high enough to encourage further investment.”
Time will tell
Last week, major oil producers meeting in Austria agreed to cut oil production by 1.2 million barrels per day (bpd). OPEC producers and non-OPEC oil exporting countries including Russia agreed last Friday to make the cut, which will be done during the first six months of 2019.
OPEC agreed to reduce its output by 800,000 bpd, while Russia and allied producers (10 producers in all) will contribute a 400,000 bpd reduction. OPEC member Iran was granted an exemption to the cuts because it is subject to U.S. sanctions which are already damaging its oil industry.
The deal was aimed at putting a floor under recently volatile oil prices. Oil markets have stabilized this week on hopes that the cuts will support prices, as well as data showing a decline in U.S. crude inventories.
“Time will tell how effective the new production agreement will be in re-balancing the oil market. The next meeting of the Vienna Agreement countries takes place in April, and we hope that the intervening period is less volatile than has recently been the case,” the IEA said.
On Thursday, Brent crude futures were trading fairly flat at $60.36 per barrel and U.S. West Texas Intermediate at $51.26. The IEA maintained its previous global oil demand growth forecast in its latest monthly report, forecasting demand growth of 1.4 million barrels a day “as the impact of lower prices is offset by lower economic growth assumptions, weakening currencies and downward revisions to certain countries e.g. Venezuela.”
Despite the agreement, the OPEC meeting in Vienna, Austria last week threw up stark divisions between producers with some more reluctant to cut than others. The cut also came after Saudi Arabia, the de-facto leader of OPEC, and Russia, had increased production over the summer.
Ahead of the OPEC and non-OPEC deal last week, the IEA noted that OPEC output had risen 100,000 barrels a day month-on-month to 33.03 million barrels per day in November as Saudi Arabia and the United Arab Emirates’ output reached record highs, offsetting a sharp loss from Iran.
“By agreeing a cut of 1.2 mb/d, and additional output curbs in Canada, producers may go some way towards restoring balance to the world market,” the IEA said. The forecast for non-OPEC supply growth for 2019 has been reduced by 415,000 b/d since last month’s report, to 1.5 mb/d, compared with growth of 2.4 mb/d expected in 2018.
