Oil and gas market forecasts have a new footnote for its list of possibilities that, if any materialized, would knock projections haywire.
Until now, the wildcards related to supply.
Venezuela, for example, teeters on the edge of economic collapse. Its citizens are suffering, lacking access to necessities and burdened by a currency fast losing value.
The authoritarian government holds control by force.
Revolutions happen in places like Venezuela. Revolutions often start with strikes in oil fields.
In Nigeria, militant groups threaten to resume attacks on oil installations and expand violence to workers.
So far, they haven’t acted. But they proved in 2016 their ability to conduct sophisticated operations and seriously cut Nigerian output.
The Middle East, of course, remains a tangle of antagonisms as well as the world’s most important oil-producing region. Elevated tension between Saudi Arabia and Iran will remain an ominous supply contingency while it lasts.
The market can adjust to supply disruption better than it could before unconventional resources added production potential outside testy areas.
But the footnotes remain in place. Any large interruption of supply would rock the market.
The new footnote relates to demand.
Stock changes and other balancing items disgorged an average 400,000 b/d in 2017 after accumulating 800,000 b/d in 2016, according to the International Energy Agency. Demand growth and production restraint by the Organization of Petroleum Exporting Countries and cooperating countries hastened the stock draw.
This year, if OPEC crude production averages 32.3 million b/d as it did last year and into 2018, stock change will be zero.
With supply at the projected level, demand below the projected rate would revive a stock build. The price effect would depend on rates at which demand fell below expectations and inventories increased.
The most likely cause of a demand slump large enough to weaken crude prices is global recession.
Prospects for that gloomy prospect rose when the US imposed tariffs on steel and aluminum, raising chances for a trade war.
Meet the new footnote.
(From the subscription area of www.ogj.com, posted Mar. 9, 2018; author’s e-mail: [email protected])
