The price of oil fell sharply overnight with Brent down 2.5% to $57.90 as I write. The culprit was traders taking profits on the new International Energy Agency (IEA) medium term outlook report:
The US light, tight oil (LTO) revolution has made non-OPEC production more responsive to price swings than during previous market selloffs, the report said, adding that this would likely set the stage for a relatively swift recovery. At the same time, lower oil prices will not provide as strong a boon to oil demand growth as might be expected.
As producers take an axe to their spending, supply will grow far more slowly than previously projected, but global capacity is still forecast to expand by 5.2 million barrels per day by 2020, and the toll on production will vary by country. Growth in US LTO is expected to regain momentum in the latter part of the forecast period as prices recover, and North America remains a top source of supply growth for the remainder of the decade. In contrast, Russia faces a perfect storm of lower prices, sanctions and currency swings, pushing its production into contraction. OPEC’s share of global supply will inch up from recent lows but will not recover to the levels enjoyed before the surge in LTO supply.
