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Potential Oversupply and Slower Demand: Will OPEC Extend Production Cuts?



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There is one thing on the mind of
many folks involved in the oil and gas industry – the upcoming OPEC meeting in
Vienna.  On June 25, 2019, the 176th OPEC meeting will
be held.

In fact, there are already
reports out there attempting to predict the potential impacts of the upcoming
OPEC meeting and other global factors on the price of oil – check out this
recent article from Bloomberg entitled, Bulls
Beware: The 2020 Oil Market is Quickly Turning Ugly

While oil prices have increased slightly today, they are still lower than many would like to see.  As of this post, WTI Crude is at $52.25 per barrel and Brent Crude is at $61.36 per barrel, according to Bloomberg Energy.  Of significant impact on oil prices is the fundamental nature of supply and demand – stockpiles are reportedly high (ish) and demand is currently low (ish), and may be going lower. 

Oil & Gas 360 released an
article entitled, Goldman
Sees Hard Path to OPEC+ Extension
that discusses these supply and demand
issues in the context of the upcoming OPEC meeting in detail.  The bottom line is that we may be going into
the OPEC meeting with many uncertainties as to whether production cuts will be
extended.  According to the Oil
& Gas 360 article
, stockpiles are currently at their highest level
since mid-2017 and this oversupply is present “amid slower demand growth.”

According to the U.S. Energy
Information Administration (“EIA”) Short-Term
Energy Outlook
which was released June 11, 2019:

Annual U.S. crude oil
production reached a record 11.0 million b/d in 2018.
EIA forecasts that U.S. production will
increase by 1.4 million b/d in 2019 and by 0.9 million b/d in 2020
, with
2020 production averaging 13.3 million b/d. Despite EIA’s expectation for
slowing growth, the 2019 forecast would
be the second-largest annual growth on record
(following 1.6 million b/d in
2018), and the 2020 forecast would be the fifth-largest growth on record.

The takeaway from this is easily
summed up by a recent CNBC article entitled, Oil
Steadies as OPEC Supply Cuts Counter Growth Concerns
as follows:  “While the talk of
prolonged supply restraint is supporting prices, concern about slowing demand
and economic growth has had a bigger impact on sentiment.”

Are we
oversupplied?  Is there too much oil in
inventories? How much will global oil demand drop?

We must
wait and see…stay tuned!