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Crude Economics
Don’t Look Now, but the Global Oil Surplus Just Tripled

Way back in June of 2014, oil was trading above $110 per barrel and producers were sitting pretty. Now, some 27 months later, those same producers have been put through the wringer and been forced to endure prices that dipped as low as $27 per barrel at the start of this year before recently settling in the $40-50 range. A global oversupply precipitated this price collapse, and its persistence has been as much of a boon for buyers as it has been a headache for sellers. Now, as Bloomberg reports, that glut appears to have tripled over the course of the past month:

More than 800,000 barrels a day of additional crude is pouring into the global market this month compared with August as Russia pumps at an all-time high while Libya and Nigeria restore disrupted supplies, according to statements from their ministry officials. That would imply a tripling of the supply surplus, estimated currently at about 400,000 barrels a day by the International Energy Agency. […]

The global oil oversupply will persist into 2017 as members of the Organization of Petroleum Exporting Countries such as Saudi Arabia pump near record levels, others such as Iran and Iraq bolster capacity and production outside the group weathers the price slump, according to the IEA. Prices may struggle to hold above $40 a barrel unless OPEC acts, Citigroup Inc. predicts.

This ought to give the delegates from various petrostates assembling in Algiers next week extra motivation to come to an agreement to freeze their collective agreement. The Saudis, for their part, seem more willing to play ball this time around, and have reportedly agreed to cut production by 1 million barrels per day if Iran joins in and other countries roll back their output to levels they hit earlier this year.

But while we wait for that meeting and analysts vacillate back and forth on the likelihood of a consensus emerging, it’s worth taking a step back to look at the bigger energy picture here: the world is awash in oil (and natural gas too, for that matter), and those cheap hydrocarbon inputs will be welcomed by all sectors of the global economy besides, of course, the oil and gas industry. Moreover, it bodes well for future global energy security that after all the peak oil hand wringing, suppliers around the world keep finding and extracting more and more of one of civilization’s most important commodities.

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  • Andrew Allison

    “The Saudis . . . have reportedly agreed to cut production by 1 million barrels per day if Iran joins in and other countries roll back their output to levels they hit earlier this year.” is a recording of a tune that’s been playing for the past year-or-so. Thus far, the other participants have declined. Iran, in particular, has been intransigent. Meanwhile, the US fracklog continues to grow.

    • Kevin

      True, though there’s something in the air that Mars this seem slightly more credible this time around.

      Perhaps it’s that the Saudis (and the Russians) seem to be nearing the end of their reserves’ ability to plug holes in the budget leading to real drops in domestic subsidies and hence standards of living. For a historically cautious regime (albeit one that’s become more daring recently) this might cause them to question the wisdom of riding out low prices in order to gain market share and While low prices pummel their adversaries’ budgets.

      Still I’d bet against implementation of an actual agreement which truly constrains production.

  • Anthony

    “…cannot act as a cartel, and faces serious problems in acting in any coordinated way in a world that is not driven by high economic growth and demand for energy, and where many new forms of petroleum and other energy supplies compete….” (Assessing the True Impact of Lower Oil Export Revenues: https://www.csis.org/analysis/opec-disease-assessing-impact-lower-oil-export-revenues)

  • Jeremy Klein

    Don’t worry jihadis, if the Lizard Queen is elected, she’ll be sure to kill US fracking somehow. So if you can just keep from shooting, stabbing, or blowing unbelievers up in the next few weeks and getting Trump elected…oh, right, you can’t help yourselves, can you.

  • LarryD

    Cartels always have the problem that any member that cheats, gains. In this case, a new major player in the market (US) is not a member of the cartel, is handling the price pressure just fine, thank you, and has political reasons (even if the Progressives can’t stand recognizing them) to keep the glut going and the cartel under pressure. Terrorism has been funded by oil money, this is they best way yet of attacking the terrorists backers. Go, Frackers, Go!

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