Three Key Catalysts that Could Force Oil HigherFebruary 12, 2019
Oil prices plunged since October 2018, falling from $77.50 to $42.50.
However, there are signs that a significant rebound is possible.
For one, Saudi Arabia just announced it plans to cut its crude production to 9.8 million bpd in March 2019 from the 11 million bpd in November 2018. And, according to OilPrice.com, exports will also fall substantially over this month and next, 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 resolution by the March 1, 2019 deadline, we do believe we will see an extension. That alone could be a boon for oil prices, and the overall markets.
And three, we could see 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.”
According to the Schlumbger, we could 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. Should things work out as we believe they could, oil prices could return to $77.50.
It could also lift quite a few oil stocks from their disastrous lows, including Exxon Mobil (XOM), Laredo Petroleum (LPI), and Devon Energy (DVN).