In the battle between the bulls and the bears, the one trend that remains constant is the trend of falling US crude oil supply. Once again, the crude oil supply drops far exceeded market expectations and according to data from the American Petroleum Institute, fell by 9.2 million barrels last week. That drop in supply is a trend that continues for falling supply is historically unprecedented in terms of actual barrels. The bears argue that this does not matter because US shale production is at a record high and demand will start to drift lower as refiners go into maintenance. They also argue that compliance by OPEC is starting to falter and that it is only a matter of time before cartel members ramp up production as it becomes every man for himself.
Yet at some point the simple math suggests that with rising global demand and falling global supply, the replacing process is under way. The forward curve in the futures market is also suggesting a tighter global supply picture. Better than expected economic data from Europe suggests that demand growth will be better than expected and the drop in China refining demand sets the stage for a lower market this week but might not be a trend but a one off.
John Kemp at Reuters lays out the bullish case. He says that oil demand is growing strong in all the major geographic regions, with the exception of the Middle East and Africa, and global demand is increasing above the long-term average rate. And while The International Energy Agency forecasts that global consumption will grow by 1.5 million barrels per day in 2017 and another 1.4 million barrels per day in 2018, the global production numbers will not keep pace. U.S. oil production (crude and condensates) is predicted to rise by 800,000 bpd in 2017 and another 1.0 million bpd in 2018, according to the U.S. Energy Information Administration and crude production is also increasing from a number of non-OPEC countries, including Canada and Brazil, in most cases as a result of investments approved before oil prices slumped in 2014.
