The Unites States will produce less in 2020 and 2021, but not as a result of coordination of supply, but due to crowding out part of an expensive supply due to prolonged low- price environment. The current situation prevents producers from maintaining or increasing output, and recent indicators of drilling activity in the USA confirms the trend for decline.
Market-driven shift to new equilibrium was also reflected in the latest short-term energy outlook of the US Department of Energy (EIA) released on April 7. In its updated short-term forecast, the agency expects that output in the US will decrease by only 470K b/d in 2020, although an extra growth by 770K b/d was projected in the report a month ago.
In 2021, according to the EIA estimates, production may drop another 730K b/d compared to 340K b/d from the previous forecast.
The market was definitely upset by these figures as the forecast implies (reasonably or not) that the United States will slash production by only 470K b/d in 2020, while at the same time, Russia and OPEC are pressured to deliver at least 10 million b/d immediate cut to counter crashing demand. At the same time, market-driven supply adjustment implies that the US will see only gradual decline in production with losers leaving (or being taken over), making the industry even healthier than before:
There are definitely no signs of cooperation of US with OPEC and Russia in EIA projections.
Here is EIA’s WTI spot price forecast:
According to the agency’s calculations, the price will rise above $ 40 mark only in 2021.
The latest API report showed that stocks rose 11.9 million barrels last week, which is not surprising given that refineries were loaded by 82.3% of their operating capacity.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.