Publications: Notes at the Margin

Market-Moving Data; No Market Power for Oil Producers; Global Oil Demand (May 18, 2020)


Three topics this week. We begin by discussing our estimates of weekly US crude oil supply. These may be market-moving data. To our knowledge, we are the only organization publishing such calculations within hours of the US Energy Information Administration's release of its weekly report on oil Wednesdays, sending them to clients and posting them on our website. As we explain here, recent price increases and the falling interest in storage support our assessment. A Bloomberg analysis further confirms our conclusions regarding US production.


The second topic relates to producer market power. Those who write about oil seem confident that the Easter-weekend agreement by oil-exporting countries to cut production, combined with further cuts by the UAE and Saudi Arabia, will boost prices. Some see these views as wishful thinking because oil producers have no market power. They may be correct. However, the actions may succeed if the most critical producers abide by their pact. If they do, they will achieve sufficient market power to raise prices if the market power measures used by competition authorities apply. The problem, though, will be independent US producers, which may respond to price increases by taking market share from the other major oil-exporting countries.


The third topic concerns global oil demand. Most economists have concluded that the world’s economic recovery will be slow. The Nike "swoosh" has been used to describe the progress expected over the next two or three years. Others see a U-shaped recovery. Those following oil are out of step. The most recent International Energy Agency forecast anticipates a quicker comeback, as do many others. Oil markets do not reflect this expectation. Projections derived from the BP Prudhoe Bay Royalty Trust (BPT) see a prolonged period of prices between $30 and $40 per barrel.


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