The global crude market is due to turn back toward oversupply in 2020. What does this mean for WTI prices and rising U.S. crude exports?
At the inaugural Alpha Insight Energy Trading Risk Summit in Houston last week, we took the audience through four important implications that the coming supply surplus will mean for crude markets.
1. $56/bbl makes sense for WTI crude in 2020
In a $70/bbl scenario, U.S. crude production would soar to 18 MMBbl/d by 2025, according to our ProdCast data. That’s too strong. Due to a mismatch in global crude quality demands, the rest of the world is unwilling and unable to absorb so much U.S. crude.
2. The market has come to terms with lower for longer pricing
Last year, U.S. crude production grew by about 2 MMBbl/d. From 2018 to 2019, output growth will be half as strong. This comes with the territory of growing supply from outlets like Brazil, North Sea, and some OPEC producers. The market has settled into the pricing environment implications.
3. U.S. exporters are taking an unsustainable haircut on crude sales
Since the start of the trade war with China, U.S. crude exporters have lost market share as Chinese buyers look elsewhere for supply. Global trade dynamics typically allow for waterborne cargo reshuffling, but the shifts can be expensive for U.S. exporters.
4. U.S. crude production is only getting lighter in gravity
It’s no secret that the bulk of U.S. crude production growth coming online is light, sweet WTI. ProdCast estimates show production of crude with 42-50 degree API gravity will rise to 6 MMBbl/d by 2025. This presents a mismatch for what’s needed for the rest of the world. Could the demand disparity hurt production growth?
All of the fundamental analysis here is possible with ProdCast from Enverus Trading & Risk. Want to take a spin and use ProdCast as a market intelligence tool? Sign up for a free trial to see the difference for yourself.