Those in the oil market fearing a flood of OPEC supply next year will probably be better off preparing for a shortage, according to Citigroup Inc.
Five countries in the group — Libya, Nigeria, Venezuela, Iran and Iraq — may already be pumping at their maximum capacity this year, Ed Morse, the bank’s global head of commodities research, said in an interview. Rather than a surge in output, there’s a risk of a market squeeze emerging as early as 2018, driven by those nations because of weaker investment in exploration and development, he said.
“Fear in the market has been that OPEC production will rise dramatically,” said Morse. However, “there could be a supply gap emerging, which could point to a tighter market,” he said in Singapore on the sidelines of the S&P Global Platts APPEC Conference.
Crude is still trading more than 50 percent below mid-2014 levels amid concern over whether output curbs by the Organization of Petroleum Exporting Countries will be enough to eliminate a global glut. A gathering in Vienna last week between OPEC and its allies ended with no decision on an extension or deepening of the cuts beyond the first quarter of 2018, while the potential revival of U.S. shale production is also weighing on the outlook for prices.
If the output reductions are prolonged, that would only hasten the prospect of a tighter market, said Morse, adding that the source of the supply squeeze will probably be OPEC rather than producers outside the group. “There’s no room for them to do more,” he said, referring to the five nations.
“We’re seeing more and more evidence that it’s not the international oil companies, it’s not the independent oil companies that are lagging new investments, but it’s OPEC countries lagging, particularly those five,” he said.
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