Energy Journal: IEA Says U.S. Oil Surge Could Overwhelm Demand

What to Watch

U.S. Output Threatens Oil Market Recovery

The International Energy Agency had a déjà vu moment as it projected U.S. shale production could flood the market as it did in 2014, writes The Wall Street Journal’s Christopher Alessi.


Although the IEA slightly raised its demand growth outlook for 2018, to 1.4 million barrels a day on the back of a strong global economy, the agency expects output from the U.S. and other producers outside the Organization of the Petroleum Exporting Countries will likely outpace demand in 2018, undermining the market rebalancing begun over the past year.


Crude prices climbed more than 50% in the second half of last year, supported by strong demand, geopolitical risk and efforts by OPEC and its allies to eliminate about 2% of global supply.


Brent crude, the global oil benchmark, wavered following the IEA’s announcement on Tuesday and later fell 0.06% to $62.56 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.30% at $59.11 a barrel.


Last year, oil investors where lulled into complacency that “this time it is different” and American producers wouldn’t ramp up output, said Olivier Jakob, managing director of Petromatrix in a recent note. But that narrative proved to be false.


“U.S. producers have reacted in style to the rising oil prices and have accelerated the pace of growth of U.S. crude oil production,” Mr. Jakob said.

The data from the IEA clashes with an announcement from OPEC that rising consumer appetite for crude would absorb the surplus coming from the U.S.

Energy News

Venezuela’s Pain is OPEC’s Gain

Maybe OPEC owes the oil price renaissance to Venezuela’s failing oil industry, writes Spencer Jakab for Heard on the Street. Crude prices recently hovered around $70 a barrel, partly supported by OPEC’s efforts to eliminate a global oversupply of crude. But the cartel’s success may partly be attributed to Venezuela, a founding member of OPEC, that pumped only 1.64 million barrels a day last month, well below its 1.97 million barrel a day allocation.


Dispute Over LNG Contract May Change the Gas Industry

A Korean gas company’s bid to legally dispute the terms of liquefied natural gas contracts with Australian exporters could drastically change the regional gas market, Reuters reports.


“We believe that contractual disputes, including arbitration proceedings, are on the increase.”

– Madjid Kübler, Managing Director of Team Consult


Trump Proposes to Sell Parts of U.S., Public Utilities

As part of its infrastructure plan, the Trump administration wants companies such as federally owned Tennessee Valley Authority to be able to sell its transmission assets to state or private buyers.


WSJ Energy In-Depth

Big Batteries Are Taking a Bite Out of the Power Market

Giant batteries charged by renewable energy are beginning to take market share away from the power plants that generate extra surges of electricity during peak hours, writes Russell Gold.

Lithium-ion batteries, which have fallen in price in recent years, are emerging as a competitive alternative to natural-gas-fired plants for providing extra jolts of electricity.

Numerous big batteries are now under construction or consideration in the U.S.

In Arizona, Tucson Electric Power is building a 100-megawatt solar facility and a 30-megawatt battery array.

The project, being developed by NextEra Energy Inc., would allow Tucson Electric to store inexpensive solar generation in the morning, when power demand is low, and deploy it in the heat of the afternoon.

Big Number


U.S. government spending grew faster than tax revenue in January compared with a year earlier, even before the effects of a major tax cut expected to be a boon for multinational energy firms and other sectors materializes.

The deficit—or the difference between the amount of money the government spent and what it took in—stood at $176 billion in October through January, the Treasury Department said Monday. That was $17 billion, or 11%, higher compared with the same period a year earlier.


Today: The American Petroleum Institute issues its weekly forecasts on U.S. crude inventories.

Wednesday: Three important oil-industry groups hold a symposium in Riyadh: The International Energy Forum, the International Energy Agency and the Organization of the Petroleum Exporting Countries. Saudi energy minister Khalid al-Falih, Russia’s energy minister Alexander Novak and OPEC’s secretary general Mohammad Sanusi Barkindo will speak.

Feb. 20-22: The Energy Institute hosts the International Petroleum Week conference in London. The speakers include BP Chief Executive Bob Dudley and Dr. Faith Birol, executive director of the International Energy Agency.

March 5-9: Cambridge Energy Research Associates hosts the CERAWeek energy conference in Houston. The speakers include IHS Markit Vice Chairman Dr. Daniel Yergin and Amin Nasser, president and CEO of Saudi Arabia Oil Co., or Saudi Aramco.

Reporter’s Notebook

WSJ Reporter Dan Molinski on falling gas prices. RBOB gasoline futures are 10% lower this month after an oil and equities selloff, and pump prices are now declining, too. “The wait is over — 2018’s first weekly drop at gas pumps has arrived,” says Patrick DeHaan at GasBuddy, noting drivers now pay an average $2.57 a gallon, down nearly 4 cents from last week . He also notes bearish government data showing U.S. inventories of oil, gasoline and distillates all increased last week. “These factors have opened the door for perhaps a brief window of relief at the pump that may last for several weeks … but don’t get too giddy–there are still some gray clouds on the horizon.”

WSJ Correspondent Christopher Alessi on speculative bets on oil.Hedge funds continued to raise their long positions in oil last month and were “more bullish on the outlook for petroleum than at any time on record,” OPEC said Monday in its monthly oil market report. The ratio of hedge fund long positions to short positions reached more than 11:1, up from a low of less than 2:1 last June, according to the cartel. But OPEC cautioned that, “since the start of 2015, such lopsided hedge fund positioning has usually preceded a sharp reversal in the price trend.”