Analys
One year after USD -37.63/bl


It is exactly one year since WTI crashed to USD -37.63/bl. Yes, it was probably trading games involved. Yes, it was highly specific to storage and pipeline constraints at the pricing point of WTI in Cushing Oklahoma as Brent crude only fell to USD 19.33/bl. Yes, it was a price war between Russia and Saudi Arabia which broke out after the 6 March meeting. Yes, it was Covid-19 lock-downs which killed demand. But what really stands out looking back was that you don’t steal from the King. You don’t steal from OPEC. You don’t steal market shares from the world’ lowest cost producers. Try that again and you’ll get punished again.

The price war between Russia and Saudi Arabia which broke out after the 6 March meeting last year looked like an ill considered tantrum from a hot tempered Muhammed bin Salman in Saudi Arabia lashing out against Russia which did not want to play the ”hold back production, loose market share, get higher prices” game any more. And maybe such a tantrum was really what happen. Who knows.
But the underlying fundamentals story here was that US liquids production was growing like crazy. From Sep 2016 to Jan 2020 it grew by 6.6 m bl/d. And Russia was sick of holding back production forever while seeing US taking more and more market share. The only reason for why this could go on as long as it did was because there was an almost comparable large decline in supply from the key OPEC producers being Venezuela, Iran and Libya which lost 4.5 m bl/d from mid-2017 to mid-2020. Thus yielding room for the incredible US production growth.
It was like the business strategy of US shale oil players was: ”Let’s steel market share from the lowest cost producers in the world being OPEC/OPEC+. Fundamentally that is a no-go strategy to start. Though it can go on for a little while before it falls apart. And it did go on for a little while but largely because of the very large decline from Venezuela, Libya and Iran. But looking back it is obvious that it had to end.
OPEC knows very well that the oil price is all about controlling supply. There is an infinite amount of oil under ground. Make sure it is not too much above ground and you’ll get rich. I.e. control your capex spending. US shale oil players obviously have been nowhere near thinking along such lines.
Looking forward is not all such a great picture if we base it on 1) The ongoing return of production from Iran and Libya. I.e. the reversal of the losses within OPEC from mid-2017 which enabled the US shale oil boom to go on as long as it did and 2) The projected non-OPEC production growth from the US EIA in its March STEO pointing to a very strong rebound in both US shale oil and total non-OPEC production towards the end of 2022.
The key message from 20 April 2020 is: Do not steal from the King. Do not try to steal market shares from the worlds lowest cost producers (it is stupid). If you do you will get punished again. In a world where oil demand is growing at around 1% over the coming years you should not lay plans for growing your production at 2% or 5% or 10% per year. Because if you do it fundamentally means that you must steel market share from someone. It for sure won’t be the lowest cost producers.
The end-game though could be that there is only one way to tame the production from non-OPEC and that is a lower price.
Brent and WTI crude prices and the crazy WTI crash to USD -37.63/bl. The recovery since then is all due to deep cuts in production by OPEC+ and still is. If OPEC+ hadn’t still been holding back significant volumes then we would have had no more than USD 30-40/bl today.
Crazy US hydrocarbon liquids growth. From a low in Sep-2016 it grew by 6.6 m bl/d before the collapse in Q1-2020. According to the EIA’s STEO from March it is set to revive and reach the same gain at the end of 2022 though the EIA STEO from April has modified that a bit lower again.
The same chart for changes in total non-OPEC production since Sep-2016 gives much the same picture. What we see is that it is not only US production which increased but also other non-OPEC producers lifted increased production in this period. But mostly it is US.
And the maga-growth in non-OPEC production did of course take their market share from OPEC. Massive decline in production by three OPEC members Iran, Venezuela and Iran. Libya has now kicked back with more to come and Iran is just about to move into the market again as signals from the ongoing Vienna talks on the revival of JCPOA (Iran nuclear deal) are positive with all sides at the table wanting the same thing. Saudi Arabia, Israel and the Iranian Revolutionary Guard may not want success but they are not sitting at the negotiation table in Vienna. A strong rebound in non-OPEC production as envisioned by the EIA March STEO forecast will be outright impossible with a production revival from these three countries.
Analys
Breaking some eggs in US shale

Lower as OPEC+ keeps fast-tracking redeployment of previous cuts. Brent closed down 1.3% yesterday to USD 68.76/b on the back of the news over the weekend that OPEC+ (V8) lifted its quota by 547 kb/d for September. Intraday it traded to a low of USD 68.0/b but then pushed higher as Trump threatened to slap sanctions on India if it continues to buy loads of Russian oil. An effort by Donald Trump to force Putin to a truce in Ukraine. This morning it is trading down 0.6% at USD 68.3/b which is just USD 1.3/b below its July average.

Only US shale can hand back the market share which OPEC+ is after. The overall picture in the oil market today and the coming 18 months is that OPEC+ is in the process of taking back market share which it lost over the past years in exchange for higher prices. There is only one source of oil supply which has sufficient reactivity and that is US shale. Average liquids production in the US is set to average 23.1 mb/d in 2025 which is up a whooping 3.4 mb/d since 2021 while it is only up 280 kb/d versus 2024.
Taking back market share is usually a messy business involving a deep trough in prices and significant economic pain for the involved parties. The original plan of OPEC+ (V8) was to tip-toe the 2.2 mb/d cuts gradually back into the market over the course to December 2026. Hoping that robust demand growth and slower non-OPEC+ supply growth would make room for the re-deployment without pushing oil prices down too much.
From tip-toing to fast-tracking. Though still not full aggression. US trade war, weaker global growth outlook and Trump insisting on a lower oil price, and persistent robust non-OPEC+ supply growth changed their minds. Now it is much more fast-track with the re-deployment of the 2.2 mb/d done already by September this year. Though with some adjustments. Lifting quotas is not immediately the same as lifting production as Russia and Iraq first have to pay down their production debt. The OPEC+ organization is also holding the door open for production cuts if need be. And the group is not blasting the market with oil. So far it has all been very orderly with limited impact on prices. Despite the fast-tracking.
The overall process is nonetheless still to take back market share. And that won’t be without pain. The good news for OPEC+ is of course that US shale now is cooling down when WTI is south of USD 65/b rather than heating up when WTI is north of USD 45/b as was the case before.
OPEC+ will have to break some eggs in the US shale oil patches to take back lost market share. The process is already in play. Global oil inventories have been building and they will build more and the oil price will be pushed lower.
A Brent average of USD 60/b in 2026 implies a low of the year of USD 45-47.5/b. Assume that an average Brent crude oil price of USD 60/b and an average WTI price of USD 57.5/b in 2026 is sufficient to drive US oil rig count down by another 100 rigs and US crude production down by 1.5 mb/d from Dec-25 to Dec-26. A Brent crude average of USD 60/b sounds like a nice price. Do remember though that over the course of a year Brent crude fluctuates +/- USD 10-15/b around the average. So if USD 60/b is the average price, then the low of the year is in the mid to the high USD 40ies/b.
US shale oil producers are likely bracing themselves for what’s in store. US shale oil producers are aware of what is in store. They can see that inventories are rising and they have been cutting rigs and drilling activity since mid-April. But significantly more is needed over the coming 18 months or so. The faster they cut the better off they will be. Cutting 5 drilling rigs per week to the end of the year, an additional total of 100 rigs, will likely drive US crude oil production down by 1.5 mb/d from Dec-25 to Dec-26 and come a long way of handing back the market share OPEC+ is after.
Analys
More from OPEC+ means US shale has to gradually back off further

The OPEC+ subgroup V8 this weekend decided to fully unwind their voluntary cut of 2.2 mb/d. The September quota hike was set at 547 kb/d thereby unwinding the full 2.2 mb/d. This still leaves another layer of voluntary cuts of 1.6 mb/d which is likely to be unwind at some point.

Higher quotas however do not immediately translate to equally higher production. This because Russia and Iraq have ”production debts” of cumulative over-production which they need to pay back by holding production below the agreed quotas. I.e. they cannot (should not) lift production before Jan (Russia) and March (Iraq) next year.
Argus estimates that global oil stocks have increased by 180 mb so far this year but with large skews. Strong build in Asia while Europe and the US still have low inventories. US Gulf stocks are at the lowest level in 35 years. This strong skew is likely due to political sanctions towards Russian and Iranian oil exports and the shadow fleet used to export their oil. These sanctions naturally drive their oil exports to Asia and non-OECD countries. That is where the surplus over the past half year has been going and where inventories have been building. An area which has a much more opaque oil market. Relatively low visibility with respect to oil inventories and thus weaker price signals from inventory dynamics there.
This has helped shield Brent and WTI crude oil price benchmarks to some degree from the running, global surplus over the past half year. Brent crude averaged USD 73/b in December 2024 and at current USD 69.7/b it is not all that much lower today despite an estimated global stock build of 180 mb since the end of last year and a highly anticipated equally large stock build for the rest of the year.
What helps to blur the message from OPEC+ in its current process of unwinding cuts and taking back market share, is that, while lifting quotas, it is at the same time also quite explicit that this is not a one way street. That it may turn around make new cuts if need be.
This is very different from its previous efforts to take back market share from US shale oil producers. In its previous efforts it typically tried to shock US shale oil producers out of the market. But they came back very, very quickly.
When OPEC+ now is taking back market share from US shale oil it is more like it is exerting a continuous, gradually increasing pressure towards US shale oil rather than trying to shock it out of the market which it tried before. OPEC+ is now forcing US shale oil producers to gradually back off. US oil drilling rig count is down from 480 in Q1-25 to now 410 last week and it is typically falling by some 4-5 rigs per week currently. This has happened at an average WTI price of about USD 65/b. This is very different from earlier when US shale oil activity exploded when WTI went north of USD 45/b. This helps to give OPEC+ a lot of confidence.
Global oil inventories are set to rise further in H2-25 and crude oil prices will likely be forced lower though the global skew in terms of where inventories are building is muddying the picture. US shale oil activity will likely decline further in H2-25 as well with rig count down maybe another 100 rigs. Thus making room for more oil from OPEC+.
Analys
Tightening fundamentals – bullish inventories from DOE

The latest weekly report from the US DOE showed a substantial drawdown across key petroleum categories, adding more upside potential to the fundamental picture.

Commercial crude inventories (excl. SPR) fell by 5.8 million barrels, bringing total inventories down to 415.1 million barrels. Now sitting 11% below the five-year seasonal norm and placed in the lowest 2015-2022 range (see picture below).
Product inventories also tightened further last week. Gasoline inventories declined by 2.1 million barrels, with reductions seen in both finished gasoline and blending components. Current gasoline levels are about 3% below the five-year average for this time of year.
Among products, the most notable move came in diesel, where inventories dropped by almost 4.1 million barrels, deepening the deficit to around 20% below seasonal norms – continuing to underscore the persistent supply tightness in diesel markets.
The only area of inventory growth was in propane/propylene, which posted a significant 5.1-million-barrel build and now stands 9% above the five-year average.
Total commercial petroleum inventories (crude plus refined products) declined by 4.2 million barrels on the week, reinforcing the overall tightening of US crude and products.


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