Wildfires in Canada. Instability in Venezuela. Stalling U.S. frackers. Drops in oil output are happening so fast that it looks as if the Americas alone could resolve global oversupply.
The 70 percent oil price slide between 2014 and early 2016 has been pegged to one problem: production exceeding demand by as much as 2 million barrels per day (bpd).
But oversupply is evaporating quickly due to output cuts in the Americas – including the United States, Canada and Latin America – and also increasingly in Asia.
“Unplanned oil supply disruptions have been a key element so far this year that have contributed to a tighter oil market than was otherwise expected,” said analyst Guy Baber of Simmons & Co.
If the disruptions last, there will be limited spare capacity to meet demand, Baber cautioned.
Output from the Americas dropped over 1.5 million bpd last quarter, while producers in Asia and Australia cut some 250,000 bpd, eating away large chunks of the world’s oversupply, government, industry and consultancy data shows.
This comes at a time when members of the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, have refused to curb output in order to retain market share and squeeze out higher-cost competitors.
“The Saudis have achieved what they want in that the market is re-balancing through price,” said senior oil analyst Neil Beveridge of Sanford C. Bernstein.
“Over the past 12 months Saudi has raised production, putting downward pressure on price to bring back discipline among the producers. This is now playing out.”
In fact, with so much non-OPEC output now off the market, producers like Saudi Arabia and Qatar have been able to raise supplies and prices for shipments to Asia, the world’s top oil consuming region.
Outages in Canada are also helping speed up the re-balancing, Beveridge added.