Market watch: June
Production outages, Opec's meeting, and perhaps a new era of US gas exports
PRODUCTION outages have mounted and as sentiment in the market begins to turn, investors will be focused on further supply-side disruptions in the coming month.
Geopolitics and disasters have already cut about 0.6m barrels a day from April’s supply. Across Opec, 2.2m b/d is now offline – most of this (like Libyan oil) has been missing for months, and is therefore priced in. But Nigeria’s production losses have almost doubled in recent weeks, to 0.65m b/d. It’s an unexpected source of a market tightening that seems to be accelerating.
Opec’s meeting in Vienna will trouble the market less. The group is not expected to agree on any output measures, even though its output soared to a seven-year high of 32.76m b/d in April. Saudi Arabia is still pumping around 10.2m b/d – about its level since January – while Iran added another 260,000 b/d in April, taking production to 3.56m b/d. Further rises through May and June will be a drag on any price rally.
One crucial market mover may come from Fort McMurray, where wildfires unexpectedly moved north of the town to threaten oil installations. About 1m b/d of output has already been affected, although stored oil has kept export pipelines running, muting the impact. A prolonged shut down will exhaust inventories, so the inferno may yet light up US prices.
US crude oil output across the seven most prolific regions is still falling and should lose around 113,000 b/d in June, down to 4.85m b/d, according to the Energy Information Administration. It thinks the Eagle Ford will be the biggest loser, dropping 58,000 b/d, to 1.21m b/d in June, while the Bakken falls by 28,000 b/d, to 1.02m b/d. That said, the administration also expected the plays’ May output to fall to 4.84m b/d, but now expects 4.96m b/d.
Cheniere Energy’s Sabine Pass plant in Louisiana has shipped its second cargo, but the destination is unknown. Europe may be the buyer – opening a new era in US gas exports to the continent.