US Shale Production Continues to Rise
December 17th, 2019
JP Morgan revised their 2020 price forecast up on the new OPEC + production cuts. In an update JP Morgan said that lower supplies along with stronger revised economic growth in emerging markets have prompted them to tighten their forecast of 2020 oil balances by 200,00 bpd compared to a surplus of 100,000 bpd. As a result, they revised up their 2020 Brent crude oil price forecast from $59 per barrel to $64 per barrel but expect prices to decline to $61.50 per barrel in 2021.
The phase one trade deal between the United States and China continues to provide optimism for the markets and putting support under energy prices. It also has the stock market on a rally as well. The stock market climbed to new highs yesterday on the optimistic outlook and it is also a big factor on why hedge funds have added to their long position in energy.
The phase one deal with not put an end to trade negotiations or hostility it will only offer a temporary respite.
The news that Boeing is halting production on its 737 MAX jet in January is something that traders will keep an eye on as some are concerned it may have a ripple impact on the economy. This is Boeings’ first production halt in two decades.
The EIA reported the US shale production would rise about 29,000 bpd in January to a record 9.14 million bpd in their monthly forecast. The majority of this increase will come from the Permian basin. The Permian’s production is expected to increase by 48,000 bpd to a new record of 4.74 million bpd. The other areas of production were down as that total was up 29 million and Permian was up 48. The report also reported that this was the smallest growth since July. US shale is slowing, and those players are trying to provide better returns for their investors.
Goldman Sachs is rising its oil return forecast to 15% from 9.7%, even though we see oil prices trading sideways in 2020.
National Economic Council Director, Larry Kudlow said the Phase One trade deal between the US and China has been “absolutely completed.” He said US exports to China will double under the trade agreement. Under the trade agreement announced last week, the US will reduce some tariffs on Chinese impros in exchange for Chinese purchases of agricultural , manufactured and energy products increasing by about $20 billion over the next two year.
China’s State Council’s customs tariff commission said it had suspended additional tariffs on some US goods that were meant to be implemented on December 15th.
Chinese economic growth will be key to global GDP and, thus oil demand growth in 2020. S&P Global Platts Analytics said the key driver to 2020 performance hinges on China and India, where China will account for 36% of global growth and India will account for another 17%. It expects China’s growth to come in at 5.8% in 2020, down from 6.2% in 2019. However, global GDP is expected to increase to 3.12% in 2020 from 2.83% in 2019. Global oil demand is expected to grow by 1.26 million bpd in 2020, up from 940,000 bpd in 2019.