Re-Balancing Crude Oil Supply/Demand, Part 2, Definitions -- January 25, 2017

I will argue that we won't see the full effects of re-balancing crude oil supply/demand until well after 2020.  I define the full effects of re-balancing crude oil supply/demand if the following occur:

• relative spike in price due to real or perceived global "shortage" of oil ("spike" -- price of oil clearly moving out of its trading range in a relative short period of time  -- in hours, or days, not weeks/months; "spike" -- disorderly rise in price of oil)
• a real or perceived discussion in mainstream media that a pending global "shortage" of oil appears to be imminent (within six to twelve months)
• strange bedfellows (US, Saudi Arabia, Russia, China) all agree oil production needs to be significantly increased sooner than later to prevent global recession or rising global tensions

The criteria might be revised. The point is that I am not concerned about a "shortage" of crude oil until well after 2020, if ever (in my investing lifetime).

However, there are many who suggest I am wrong. Some feel that we will start to see a re-balancing of crude oil supple/demand:

• early signs by the end of 2017 (this year)
• definite, clear-cut signs by end of 2018
• whenever "it" occurs, it will occur a lot sooner than my "2020 date"

I presented my meandering thoughts at this post where I suggest "not to worry" about a shortage in the near future.

Two links that suggest I am wrong:

From World Oil: Asia grabs record North Sea crude oil as OPEC cuts supply. Data points:

• "Asia's oil refineries are turning to the North Sea for crude supplies like never before"
• crude exports to Asia from the North Sea are poised to reach a record 12 million bbls in January (Bloomberg)
• if all the oil sailing from Norway and the UK continues to flow as planned, about two-fifths of January supply underpinning the Brent crude benchmark will go to Asia

From Barron's Asia: Bernstein Research sees substantial oil deficit in 2017 after OPEC deal. Data points:

• OPEC cut: a "realistic target" for Brent crude is $60/bbl in 2017; $70 in 2018
• Once cuts are implemented (Jan-17), oil markets will shift from surplus into deficit. Given the cuts in production announced by OPEC, we expect that markets will move into a 0.5MMbl/d deficit in 1H17. By the second half of 2017, the deficit could be substantial with a supply deficit of over 1MMbls/d.

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Comments

I'm not sure if the orderly rise in the price of oil (WTI) from $52 to $60 by the end of 2017 would fit my criteria of a "shortage." A "disorderly" rise from $52 to $60 in 2017 would constitute a shortage or "the pendulum having swung too far" in supply/demand re-balancing.

I'm not sure if any of this makes sense. My thoughts will likely be refined. But it provides a "benchmark" of sorts where I think we stand today, and can be considered a supplement ot my early post on the same subject (linked at the beginning).