Bullish or Bearish, TAG Oil continues to thrive

Despite the millions of barrels of oil sitting in storage and the increase in U.S. shale output, many in the industry are still making a bullish case for crude.

Bullish factors include:

  • The possibility of OPEC extending their output cut past June
  • Falling U.S. gasoline inventories
  • Production halts in the North Sea and Canada have helped bolster prices
  • The possibility of another sudden outage in Libya, which lost 250,000 bpd, leaving it unclear if Libya (which as of now has a production of 500,000 bpd) will be able to hit their target of output above one million bpd by end of summer.

As Tamas Varga, an analyst at PVM Oil Associates Ltd. told Bloomberg, “The weekly U.S. oil statistics were bullish. If OPEC decides to extend its production cuts for another six months and U.S. gasoline inventories continue to fall, then a ‘bullish cocktail’ is in the making.”

On the other hand, short-term bullish trends could be fought by a few major factors, namely: weaker Chinese demands, supply growth from the U.S., and OPEC bringing back the 1.2 million barrels from their output cut.

Still, if we take the long view, the IEA has continually warned that since the past two years have been spent slashing investment into new projects and focusing on U.S. shale—which will start to fizzle by the end of the decade—we may not be able to meet global oil demands in a few years, forcing us to return to the Middle East to fulfill our supply needs.

The IEA isn’t the only organization stating a long-term bullish outlook.  

At the FT Commodities Global Summit in Switzerland in March, Daniel Jaeggi warned that the industry is too focused on shale projects, to the detriment of long-term supply. “We are sowing the seeds for potential instability in the future and more volatility…. By the end of the decade you won’t be able to satisfy demand with short-cycle barrels.”

“Crude is rising even though we have record inventories at Cushing,” Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida, reported to Bloomberg. “That’s because the rise in refinery utilization is a reflection of where inventories are heading.”

Ben Luckock, co-head of Group Market Risk and former head of Crude Trading at Trafigura Group Ltd., said at the FT summit. “The low-hanging fruit on the short-cycle projects are being used now so I am more in this camp that says we are starting to see potential issues three or four years down the track.”

Bullish or Bearish, TAG Oil continues to thrive.