Incredible! What I've Been Waiting For! Zeits On Global Crude Oil Re-Balancing -- April 2, 2018

I have a pretty good feeling for the crude oil inventory story here in the states. I have no idea with regard to global inventories. My hunch: we're being sold a bogus story, similar to the bogus story we're being sold in the US.

So, now, Richard Zeits comes to the rescue. I haven't read it. Here is the link. I'll read it and come back with comments, if the spirit moves me.

Zeits' summary: 

• OPEC's latest report suggests that the market for crude will be undersupplied by ~0.4 million barrels per day in 2018
• However, the forecast appears based on the assumption of anemic production growth in the U.S.
• OPEC's forecast appears to be in strong disagreement with the EIA's forecast

My summary:

• OPEC: talking its book -- Saudi Aramco -- global supply will be undersupplied
• OPEC: underestimating EIA's numbers and "forecast"

The question: what leads OPEC to underestimate the EIA"s numbers? 

• OPEC is correct -- global supply will be undersupplied
• OPEC is wrong
• OPEC is knowingly misleading for their own benefit
• OPEC honestly doesn't understand US oil industry 

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Comments.

This is the bottom line, worst case scenario -- OPEC's estimate -- "the global market will be undersupplied by 0.4 million bbls per day in 2018." That's the best OPEC can do? LOL.

"Millions" seems like a huge number -- especially on a "per day" basis.

But the "number" is not "millions." It is a paltry 400,000 bbls/day. That's against 100 million bbls of production daily. 400,000 / 100,000,000 = 4/1,000 = 0.4%.

Not only is that a rounding error, but if anyone thinks anyone can calculate the amount of oil sloshing around in tankers, pipelines, rail cars to that degree of accuracy ... is, well ... should I say, nuts?

Let's just take the Bakken alone. Currently producing 1.1 million bbls/day. "Everyone" predicts that the Bakken will set new production records this summer. New records mean that the Bakken (North Dakota) will produce in excess of 1.2 million bbls/day. North Dakota alone will add 100,000 bbls/day without breaking a sweat.

I've dropped the bubble for the Permian, but I'll let readers correct me. The Permian currently produces about 2.5 million bbls/day and will easily ramp to 3 million bopd by the end of the year (2018).  And that's just the Permian.

Let's add in Kashagan. Mexico's Gulf of Mexico. The US Gulf of Mexico. Let's add in Exxon's Guyana. Add in "Statoil's" new push off shore Norway. Subtract out Libya (inconsequential). Subtract out Venezuela (inconsequential). Both Libya and Venezuela will be offset by Canadian production if push comes to shove.

Bottom line: if the best OPEC can do is "threaten" a shortfall of 400,000 bbls/day this year -- this is great news for consumers, but not necessarily great news for oil bulls.

Other data points from the article:

• the OPEC "over-supply" number of 400,000 bopd, by the way, was reduced from its earlier month estimate, 600,000 bopd
• OPEC estimates 2018 crude oil demand growth will be equal to that of 2017: 1.6 million bopd
• OPEC: total oil demand will be 98.6 million bopd in 2018
• OPEC production for 2018:
• OPEC estimates: for 2018, now predicts supply to be 32.6 million bopd, down from 32.9 million bopd
• secondary sources: OPEC's crude oil production in February, 2018, declined to 32.19 million bopd from 32.26 million bopd in January, 2018, driven in great part by another big drop in Venezuela's volumes (32.26 - 32.19  = 70,000 bbls (seriously?  - these numbers are taken seriously?
• OPEC anticipates US crude oil production will grow by 0.52 million bopd from December, 2017, to December, 2018

My bottom line:

• the numbers don't matter
• what matters is perception
• OPEC needs to persuade analysts that there will be an imbalance, with demand exceeding supply
• nowhere in the article is current global supply mentioned
• in the US: crude oil supply sits at slightly less than 30 days
• globally: crude oil supply is approaching 70 days

Forecast for US crude oil production:

Venezuela imports (US), weekly, most recent data reported by EIA through the fourth week of March (about as current as one can get). Can someone please point out the huge drop in Venezuela  exports to the US? 

• 704,000 bopd most recently vs 439,000 bopd one month ago
• 704,000 bopd  most recently vs 506,000 bopd the previous week
• 704,000 bopd is the most since the second week in November, 2017
• Venezuela's exports to the US were down to 174,000 bopd in the third week of February, 2018, just a bit over a month ago

My two cents worth. The only case/hope for $75 Brent (currently $68 and falling) is

• increased global demand (fairly unlikely), AND;
• OPEC-Russia alliance remains intact (50-50 chance of succeeding through 2019), AND;
• Venezuela's case worsens (unlikely), AND;
• Canada shuts down its oil industry, AND ...
• .....