Current State of Crude

Supply constraints, steady demand, and inventory normalization are all signs of a potential turnaround in Energy.

Global Supply Constraint

The relentless growth in U.S. shale production has more recently been offset by plunging oil production in Venezuela, down nearly 1 million barrels per day (-38%) over the last 24 months. This oil production will not likely come back very quickly given the unstable political situation.

 

 

 

 

 

Midland Texas Crude vs WTI crude differential has widened to almost $5/barrel, after three years of little no variance. The recent increase in the differential is due to the fact that take-away capacity including pipeline, rail, trucks and local refining is approaching maximum utilization, causing bottlenecks in the region.

This is expected to persist until more pipeline capacity comes online in 3Q 2019. Other constraints in the region include a shortage of sand, labor and water.

 

Inventory Normalization

OECD inventories have essentially normalized from the peak, when they were 300 million barrels above the five-year average.

 

 

 

 

 

 

 

Demand Growth and Stabilization of Price

Global demand growth remains robust, while the price of crude oil has not dipped below $60/barrel year to date in spite of the increased production (one million barrels/day) of Permian (shale) production.

 

 

 

 

 

 

Cambiar Conclusion 

Global production constraints, coupled with inventory normalization and increased demand provide a bullish backdrop for a healthy oil market and potential for a further rise in prices in the near future.

 

Disclosures

Certain information contained in this communication constitutes “forward-looking statements”. Due to market risk and uncertainties, actual events, results or performance may differ materially from that reflected or contemplated in such forward-looking statements. Any characteristics included are for illustrative purposes and accordingly, no assumptions or comparisons should be made based upon these ratios.  Statistics/charts may be based upon third-party sources that are deemed to be reliable, however, Cambiar does not guarantee its accuracy or completeness. Past performance is no indication of future results. All material is provided for informational purposes only and there is no guarantee that the opinions expressed herein will be valid beyond the date of this communication.