Since October 2018, doom and gloom have soaked energy headlines.
Oil prices sank from a high of $77.50 to $42.50 on oversupply, a stronger U.S. dollar, and trade war fears that had the most seasoned energy investors banging their heads against the wall.
However, it appears we may finally get a break from downside.
For one, Saudi Arabia plans to cut its crude production further to 9.8 million bpd in March 2019 from the 11 million bpd in November 2018. Exports are also likely to pull back to an average of 6.9 million bpd from 8.2 million bpd in November.
Two, oil markets are also keeping a close watch on trade war developments between the U.S. and China. While we don’t expect a compromise to be reached by the March 1, 2019 deadline, we’re likely to see a deadline extension.
Any news of that happening could be a big boost to markets.
And three, another potential catalyst for higher oil prices is a slowdown in U.S. shale drilling.
While U.S. crude oil production will grow through 2020, it will do so at a slower pace than 2018, according to the U.S. Energy Information Administration.
“The dramatic fall in oil prices in the fourth quarter was largely driven by shale production surprising to the upside as a result of the surge in activity earlier in the year”, Schlumberger told investors, as quoted by Reuters. “The shale surge, combined with generous waivers from U.S. sanctions on Iran’s oil exports and the sharp fall in global equity markets, created a near perfect storm to close out 2018.”
The good news, according to the company is that we may see a more balanced oil market as sanctions waivers are not renewed, as trade war tensions cool, and as we begin to see the impacts of lower drilling activity.
It could all create a “perfect storm” for higher energy prices in coming months.
Stay tuned for potential opportunities from The Cheap Investor.
Ian L. Cooper