Here's an excerpt from an institutional research note written by Hedgeye Potomac Senior Energy Policy analyst Joe McMonigle. For access to this entire research note or our upcoming conference call with former OPEC President and Algerian Energy Minister Chakib Khelil on Friday, May 12 at 11:00 AM ET email sales@hedgeye.com.
OPEC approaches its May 25 meeting in Vienna with an oil market seemingly captured in a production glut narrative. This is not how it was supposed to go.
When OPEC announced its 6-month production cut deal in November, it was widely expected (not by us) to start reducing massive global crude inventories by the spring of 2017 and bring the market close to balance by the end of the year. As a result, oil prices rebounded due to OPEC’s action and the news that Saudi Arabia had cut more than was required under the deal terms.
But US producers also responded to OPEC’s efforts. Since the OPEC deal was announced, US producers added 600,000 barrels a day (b/d) of crude and now approach a total of 9.3 million b/d. EIA has recently revised its estimate for US production to 9.64 million b/d by the end of the year.
And then there is the “US Rig-covery” as we like to call it. Since the OPEC deal was implemented in January, US producers have added 178 oil rigs for a total of 703 oil rigs – more than double a year ago.
OPEC needs to change the bullish market narrative, and its playbook in this case calls for a surprise. When asking our OPEC friends recently about the length of the extension, we were getting coy responses...
*If you're an institutional investor email sales@hedgeye.com to read this entire research note.
