Publications: Notes at the Margin

Oversupplied? (July 15, 2019)


The price implications of the recent IEA, EIA, and OPEC production forecasts seem bleak for producers. If the IEA, EIA, and/or OPEC forecasters are correct, crude prices will decline. The banks putting forward projections also seem to offer little hope to beleaguered producers. Problems lay ahead if one accepts the forecasting consensus.


Even the market impact of the impending IMO low-sulfur requirement for marine diesel seems unlikely to provide respite to oil producers.


So, should producers be glum? Should consumers, particularly truck drivers and airlines, break out the champagne? Probably not because the IEA, EIA, and OPEC projections assume investors will fund the rise in US oil production. The economists at the three organizations apparently forgot that it takes capital to find and develop oil, even shale oil. The evidence today suggests investors are on strike. If this is the case, such forecasts are just random numbers. Consumers beware.


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