U.S. Oil Production to Bottom in June?
May 28, 2020
Morgan Stanley raised its year-end Brent price forecast to $40 per barrel. It cited a faster-than-expected rise in global oil demand as countries ease coronavirus restrictions and oil producers cut supply. Morgan Stanley estimates as much as 6 million bpd will be undersupplied to the market by the end of the year. The recent rebalancing is mostly due to supply cuts rather than increased demand, the bank said.
The Chinese government announced its intention to unilaterally and arbitrarily impose national security legislation on Hong Kong. This undermines Hong Kong’s autonomy and freedoms. This change could lead to changes in how the United States interacts with Hong Kong in the future. Hong Kong has enjoyed a special economic status under U.S. law, but with China’s actions that changes. This decision and the changes it brings has increased the tension between China and the US. This action has created questions about the status of the U.S-China trade relationship.
The energy markets saw some profit taking yesterday. Optimism is growing that demand is on the way back and that the production cuts are leading to a faster rebalancing than many thought possible. This will continue to have a bullish affect on prices.
API published its weekly inventory update yesterday and reported crude oil stocks were up 8.7 million barrels. A Reuters survey of stocks estimates they will be down 1.9 million barrels. API expects gasoline stocks to rise by 1.1 million barrels. Distillates on the API report were up 6.9 million barrels. The API reports stocks at Cushing, Okla. are down 3.4 million barrels.
Rystad Energy estimates US oil production will reach a bottom of 10.7 million bpd in June. That would be a two-year low. The U.S. monthly output is not likely to exceed 11.7 million bpd before 2022. Before the pandemic, the United States produced 12.9 million bpd in March 2020.
Russian President Vladimir Putin and Saudi Arabia’s Crown Price, Mohammed bin Salman, agreed on further “close coordination” on oil output restriction. They noted the importance of joint effort aimed at reaching the agreements with the OPEC+ group in April on oil production cuts. The group is set to meet on June 8th to June 10th to discuss oil market conditions, its current production agreement, and potential further steps.