Global oil inventories are falling because of OPEC and non-OPEC production cuts but the road to market balance will be long.
Production cuts have removed approximately 1.8 million barrels per day (mmb/d) of liquids from the world market since November 2016 (Figure 1).
Saudi Arabia has cut 619 kb/d (35% of total) and the Gulf States Cooperation Council—including Saudi Arabia—has cut 1,159 kb/d (65% of the total). Other significant contributors outside the GCC include Iraq (12%), Russia (12%) and Mexico (9%) (Table 1). Nigeria’s cuts are probably involuntary since it was exempted from the OPEC agreement. Iran and Libya–also exempted–and both increased production.
Inventories and The Forward Curve
OECD inventories began falling in July 2016, four months before the OPEC production cuts were finalized. Stock levels have declined approximately 107 mmb according to recently revised EIA STEO data (Figure 2). That includes the January 2017 increase recently noted in the April IEA Oil Market Report.
Although this represents progress toward market balance, stocks must fall at least another 260 mmb to reach the 5-year average level to support oil prices in the $70 per barrel range.
Almost three-quarters (73%) of OECD decline was from non-U.S. inventories. Perhaps the intent of OPEC’s November cuts was to stimulate a decrease in U.S. inventories (about 45% of the OECD total). U.S. stocks and comparative inventories were increasing at the time of the cuts and did not start to fall until February 2017 (Figure 3). Since mid-February, U.S. stocks and comparative inventory have each declined 20%.
Still, U.S. inventories must fall another ~143 mmb to reach the 5-year average (Figure 4).
The immediate results of the OPEC cuts were an increase in oil prices and an important change in the term structure of crude oil futures contracts. Before the cuts were announced, the term structure of the WTI oil futures curve was in contango (prices are higher in the near-future). That favored storing rather than selling oil and contributed to growing inventory levels (Figure 5).
In early March 2017, however, oil prices fell as investors lost confidence that the cuts were working. Forward curves moved into weak backwardation (prices are lower in the near-future). Now, prices have increased with outages in Canada and Libya, and the forward curve has moved into stronger backwardation. That favors selling rather than storing crude oil and contributes to decreasing inventory levels.
Market Balance, Supply and Demand
The latest IEA Oil Market Report stated, “It can be argued confidently that the market is already very close to balance.” What does that mean?
Market balance means that production and consumption are approximately equal. That is an important first step for a market in which production has exceeded consumption for most of the last 3 years but it hardly means that $70 oil prices are around the corner.
Market balance must be expanded to be useful: production is not the same as supply, and consumption is not the same as demand. Supply is production plus inventory. Demand is the quantity of oil the market is willing to buy at a certain price–it may be either more or less than production.
Oil prices collapsed in 2014 because demand wasn’t great enough at $100 per barrel to absorb the output from the 2010-2014 production bubble. Prices collapsed to $30 per barrel before a transformed market began a weak and uneven recovery, and production surpluses began to decrease slowly (Figure 6).
Demand did not increase enough until July 2016 to require critical supply withdrawals from inventory–a small subset of total supply. U.S. inventories did not begin to decline until after the OPEC cuts took effect in February 2017.
In the real world, the 5-year average inventory level represents a dynamic proxy for market balance. Comparative inventory is the measure of how far the present market must rise or fall to reach that level. IEA data indicates that inventories are 330 mmb above the 5-year average although revised EIA data suggests that levels are closer to 260 mmb higher than that important benchmark. In either case, it will take 6 months to a year to approach the 5-year average.
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Oil and gas sector is one of the most lucrative sectors for job seekers from industries all over the world. It offers great salaries and benefits packages and an opportunity to travel and work overseas. Due to its high demand, scammers are preying on the vulnerable oil and gas workers. To ensure you don’t fall prey to their mischievous tactics, we would recommend reading our guideline below:
How does scamming occur?
The scammer poses as an employer or recruiter of an oil and gas company or he may claim to be an employee or recruiter for a job consultancy firm catering to the oil and gas industry. They offer irresistible employment opportunities and often demand money in advance to conduct further processes. Money is often demanded on the pretext of work visas, travel expenses, background or credit checks that the job requires.
What do scammers want from you?
It is important to understand what the scammer's agenda is so that it helps you shield yourself from getting conned:
To extract money: On the pretext of getting you a job in the energy sector employing any of the tactics mentioned above
For identity theft: scammers look for valid identity of people and ask for confidential personal details including bank details to commit fraud through your name or to withdraw money from your account.
Whatever be their modus operandi, their goal is to either separate you from your cash or accomplish an identity theft. The bigger problem is, the scammers are getting better at their game and coming up with innovative ideas to lure innocent job seekers. In oil and gas industry, the scammers are targeting the job seekers from overseas, immigrants or contractors as they feel it is easier to attract them on the pretext of work permits, high salaries, paid travel, better lifestyle in the first world countries.
How to spot a job scam and keep yourself secure?
There is always a difference between real and fake, all you need to do is be watchful to notice the underlying discrepancies. There is a pattern that scammers usually follows, which is discussed below. Make sure you watch out for these red flags when you receive any job offer next time:
Free email provider - No legitimate hiring agency or company will use the services of free email provider like Gmail, Hotmail, or Yahoo. So, if you are receiving an email or have been requested to share your details on emails that use free email services, then be extremely cautious. The scammers try to trick the job seekers by using an email address that looks authentic for instance: [email protected]. It is important to notice here that the ‘xyz’ part of the email ID is usually a gmail, yahoo, etc. which is a free email address. A legitimate job provider would never use.
Fake or new company name - If company name or oil and gas recruitment agency name is mentioned along with the free email id, then do a quick search on the company. Verify its existence and contact them via official email address and contact numbers mentioned on the website. Check their social media presence too. If the website and social media page look new while the company claims to be in business for a substantial amount of time, know for sure that there is something fishy.
Bad grammar and confusing job details - The scammers usually do not pay much attention to structure the mail. You can spot grammatical errors and even the job descriptions are not explained well or is completely different than your skillset and experience. Any authentic mail from a company or oil and gas recruitment agency will ensure an error-free, concise, and clear communication
Fee to conduct a job interview - No legitimate oil and gas company or recruitment agency will ever ask for money to conduct a job interview or to apply to job positions. If the mail says, the money will be refunded once you appear for a job interview, then please do not trust such claims as it is always bogus.
Asking for confidential personal information - Anyone asking for information that you will never put on CV, is a warning sign. It includes your bank details, passport copy, identity cards, your current residential details and so on. No genuine company will ever ask for such details before you sign the offer letter. If by chance, you have shared your bank details or another confidential detail to the scammer, contact your bank and email service provider and register a complaint against it.
Unknown source - There are countries who have strict spam rules and until you subscribe or give consent to the company, they cannot send you emails. So, if you receive an email from a company you haven’t contacted or have not applied for jobs, then be cautious it might be a scam.
The principle on which scammers operate is “Too good to be true”. Don’t entertain any job offer that offers a position, you are not qualified for or offers a salary which is unrealistically high. In the oil and gas sector, be careful not to reveal your passport/work visa details to the scammer. Remember, if you find anything which is way beyond the realistic expectations, then trust your instincts and drop the offer and do not respond.
See our infographic below for a quick summarized glance -
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Searching for the right talent is often a tedious chore for the HR. However, with technological improvements, the usage of app-based recruitment has increased manifold. Recruiters and job seekers are increasingly adopting this new method. A mobile application simplifies the labor-intensive and time-consuming recruitment task and comes loaded with features that help to automate the recruitment cycle. For all the good, app-based approach can do, it still comes under fire from the critics. Here's our take on the pros & cons of App-based talent search.