OPEC Is Winning The Price War Says IEA

Oil markets may not balance until late 2016, but supply is finally contracting in a big way.

Early last week the EIA confirmed that U.S. oil production was down sharply since peaking in April at 9.6 million barrels per day (mb/d). The agency estimates that U.S. output fell by 140,000 barrels per day in August, a steeper decline than in previous months. In its latest weekly estimate (which is less accurate than monthly retrospective estimates), U.S. oil production is now down to just 9.1 mb/d.

On September 11, the Paris-based International Energy Agency (IEA) added its voice to the debate with its latest monthly Oil Market Report. The IEA believes that the U.S. could see a loss of 400,000 barrels per day in 2016.

Not only that, but the IEA acknowledges the wisdom of OPEC’s strategy of pursuing market share. “On the face of it, the Saudi-led OPEC strategy to defend market share regardless of price appears to be having the intended effect of driving out costly, ‘inefficient’ production.” That is because non-OPEC supply is contracting while OPEC is keeping production elevated. Low oil prices, as a result, are “closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea, which may result in the loss next year of half a million barrels a day – the biggest decline in 24 years.”

Although the adjustment will be painful, even for OPEC, the oil cartel could succeed in its objective. Global supplies will contract, and demand will pick up the slack. Demand is already at a five-year high, potentially growing by 1.7 mb/d this year.

Full article: OPEC Is Winning The Price War Says IEA (Oil Price)

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