Despite a record drawdown from US oil inventories and the fact that Saudi exports to the US are at a 30 year low, the International Energy Agency (IEA) is backtracking their prediction of a global oil market rebalancing because of an increase in OPEC oil production. This comes as the agency, famous for underestimating demand, raised it and now predicts that global demand will increase by a historically strong 1.5% this year to 98 million barrels a day. Still, with disappointing market action, it seems the pressure on OPEC is rising even as the market is ignoring the longer-term impact of under-investment and signs that we are going to see a shale oil production pullback in the next few months.

The IEA blasted OPEC’s compliance with production cuts which they say fell to 78 percent last month from 95 percent in May. While this production number is disputed by other sources, the fact of the matter is that the IEA believes that not only will OPEC have to go back to full compliance to get the global oil market back under control, they will need to reign in OPEC members Libya and Nigeria that have no quota. The IEA seemed to ignore improvement from non-OPEC oil producers that joined in the pact that saw their compliance improve.

The IEA did warn about the possibility of a shale oil pullback. The IEA warned that ”Financial data suggests that while output might be gushing, profits are not and recent press reports quoted leading company executives saying that oil prices need to be around $50 per barrel to maintain production growth.” It like I said before, losing money on every barrel and trying to make up for it in volume is not a sustainable business plan. 

Even as the Energy Information Administration (EIA) reported that US oil production had risen, most of that gain was from Alaska and the Gulf of Mexico. U.S. oil production was up by 59,000 barrels a day to nearly 9.4 million barrels a day but it was not all shale. There was a 34,000 barrel increase from Alaska.