What to Watch

The Clash of the Titans: U.S. Oil Production to Surpass Saudi Arabia, Russia in 2018

 The age of U.S. energy supremacy may be upon us, according to recent data from the International Energy Agency, that forecasts American crude oil output in 2018 eclipsing production in Saudi Arabia and rivaling that of Russia, the world’s two largest oil producers.

Boosted by a resurgent shale industry, U.S. crude production should climb above 10 million barrels a day in 2018, an all-time high not seen since 1970, the agency said Friday in its closely watched monthly oil market report.

U.S. producers have been able to open the spigots largely as a result of the recent rally in crude prices. The price of Brent crude—the global benchmark—has risen roughly 50% since 2017 lows in June.

On Friday, Brent was down 0.68% at $68.83 a barrel on London’s Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down by 0.70% at $63.50 a barrel.

Prices have been supported by efforts by the Organization of the Petroleum Exporting Countries and its allies to eliminate about 1.8 million barrels a day of global output to rein in a global supply glut that has weighed on prices for over three years.

But U.S. production offset around 60% of those cuts, the agency said. The agency’s data point to an alarming rise in non-OPEC supply that could delay a much anticipated rebalancing of the oil market.

Official data sources, however, vary widely in their expectations for crude output outside the global cartel.

OPEC is projecting an increase of 1.15 million barrels per day of non-OPEC supply in 2018.

The U.S. Energy Information Administration, however, expects non-OPEC supply to rise by 2 million barrels per day, and the IEA sees an increase of 1.7 million barrels per day, which analysts say is higher than the projected growth in global oil demand.

“OPEC’s assumption of non-OPEC supply is far too low, in our opinion,” said Commerzbank analysts in a recent report. “We see the IEA’s assessment as more realistic than OPEC’s.”

 

Energy News

Keystone XL Pipeline Obtains Enough Shipper Commitments to Proceed

The embattled firm TransCanada Corp. said Thursday it has received enough commitments from oil shippers for its Keystone XL pipeline expansion and that work on the controversial project could begin in 2019. The company first proposed the expansion of its Keystone pipeline in 2008, but it was stalled as opposition from landowners and others in Nebraska helped animate a national protest movement.

BP Returns to a Northern Iraq Now Free of Islamic State

In a show of confidence, Iraq’s oil minister Jabar al-Luaibi and Michael Townsend, BP PLC’s executive director in Iraq visited the Kirkuk oil fields in northern Iraq on Thursday. The visit comes as BP is set to return to the region for the first time since Islamic State swept through the area three years ago, and made it one of the world’s most dangerous energy-production provinces.

“OPEC’s oil ministers are not losing sleep over shale oil, but OPEC’s research team increased its non-OPEC supply estimate for 2018”

Olivier Jakob, managing director of Petromatrix

Venezuela’s Oil Production Is Collapsing

Venezuela’s oil output is collapsing at an accelerating pace, deepening an economic and humanitarian crisis and increasing the chances the country will default on its debts. Crude oil production fell 12% in December from the month before, according to government figures released Thursday.

WSJ Energy In-Depth

Diesel Demand Boosted Crude, But May Now Hurt It

Diesel may be oil’s undoing, writes the WSJ’s Christopher Alessi.

The booming global economy has been driving demand for diesel and other so-called middle-distillate oil products, including fuel for trucks, jets and ships. More recently, arctic temperatures in the U.S. boosted the need for heating oil.

World demand for diesel rose to more than 28 million barrels a day in 2017, up from 27.5 million barrels a day in 2016, according to the International Energy Agency.

The price of diesel has soared by close to 30% since August and has helped lift Brent crude’s fortunes.

But as the price of diesel has increased, refiners have rushed out more product and speculative investors have jumped in. That has raised concerns that diesel’s price could weaken, putting pressure on crude, which it is refined from.

Analysts say speculative investors in any asset or security will typically move out much quicker than other buyers when its price begins falling. “If diesel comes off the boil, crude would also come off the boil,” said Stephen George, chief economist at KBC Advanced Technologies.

Big Number

$875 million

Nigeria has filed a claim against JPMorgan Chase & Co. for more than $875 million, accusing it of negligence in transferring funds from a disputed 2011 oilfield deal to a company controlled by the country’s former oil minister, Reuters reports.

FutureCurve

Tuesday: The American Petroleum Institute releases its forecast of U.S. crude inventories.

Wednesday: The U.S. Energy Information Administration releases its weekly petroleum status report.

Jan. 29-30: London-based Chatham House holds its 2018 energy conference. Invited speakers include Claudio Descalzi, CEO of Italy’s Eni, Jabar Ali al-Luaibi the minister of oil for Iraq and Mustafa Sanalla, the chairman, of the National Oil Corporation of Libya.

Reporter’s Notebook

WSJ reporter Benoit Faucon on oil producers’ commitment to eliminating supply. OPEC’s crude exports have risen sharply in the first two weeks of 2018 on rising supplies from Iraq and Nigeria, shipping tracker Kpler says, underscoring the challenges faced by the cartel in maintaining compliance to agreed production curbs. Through the first two weeks of 2018, seaborne export volumes leaving OPEC countries averaged 26.9 million barrels a day, an increase of 2.28 million barrels a day from the four-week average after Dec. 4, 2017, Kpler says. Iraqi crude volumes leaving from the nation’s southern ports rose by 225,000 barrels a day due in part to Iraqi seasonal refinery maintenance and attempts to make up for lost production in the north of the country following fighting with Kurdish forces, the shipping tracker says. Nigerian exports have pushed above 2 million barrels per day for the first time since early November of last year.

The WSJ’s Christopher Alessi on whether central bank decisions impact crude. Expected monetary policy tightening around the world in 2018 is “not likely to have a considerable impact on the oil market,” the Organization of the Petroleum Exporting Countries said Thursday in its monthly oil market report. Oil companies don’t face any significant funding shortfalls as a result of the tightening but could see “some increase” in borrowing costs, the cartel said. The impact should also be limited in an “environment of improving economic growth,” OPEC added.