After a long and eventful decline in prices, the crude-oil market has suddenly been experiencing the other side of the supply-demand coin, something that it has not had to deal with in a while: a bull run cobbled together from a series of unplanned supply outages.
The ongoing wildfire in the tar sands region of Canada was another outlier event, knocking out over 1 million barrels of production per day.
Venezuela has been on the precipice of economic Armageddon for several months, now, and its production has steadily fallen, and, until the recent financial rescue by China, it appeared ready to fall off a cliff.
The steady decline in U.S. shale production from 9.4 million barrels per day to just under 8.9 million barrels has made all of these events matter again. During the height of the production glut, neither Venezuela nor Nigeria could give their oil away. Nigeria, in particular, had scores of cargoes on the high seas, in search of a buyer, at times.
Oil prices have been gripped by bull-market fever, of late, with bullish events being seized upon and bearish elements, such as the continued rise in overall OPEC output, to record levels, ignored.
Offsetting these outages has been the rapid return of Iran to the market, reaching pre-sanction production levels much quicker than most had expected.
The newly bullish set-up seems to have gotten to Goldman Sachs, which turned from bullish to bearish, after the rash of supply disruption events.
Depending on how you tally up the lost production, it can reach as high as 3.75 million barrels per day, which is a lot. But these will not be lasting disruptions.
There have been several fits-and-starts in Libya, but as the past several years have shown, once a fragile peace takes hold, the oil flows. Just last week a cargo sailed from its eastern port.
Until the Alberta wildfire kicked up, again, over the past couple of days, oil infrastructure was already being returned to service. And the oil market has lived for decades, now, with the occasional flare-up of hostilities on the Nigerian Delta, usually interrupting some inland production, only for a time.
The market will likely be seeing more overall output from OPEC, in the months ahead. Saudi Arabia has stated its ability and intention to raise output to 11.5 million barrels per day, which would represent a 1 million barrel-per-day increase, from current levels, mostly to satisfy its summertime, internal demand. And that is significant.
The analyst community, for whatever reason, has historically doubted both Saudi resolve and capabilities. Do yourself a favor, when handicapping the oil market: Start by taking the Saudis at their word. More often than not, they put (or remove) their oil where their mouth is.
The rash of outages is not to be dismissed, and the current market reaction is not unjustified. When the bulls or bears get on a winning streak, lucky strikes occur, but that should not necessarily alter your world view, or flip your medium- or longer-term view.
This price rebound will bring desperate owners and producers of oil out of the woodwork to sell barrels and stay alive, financially. Not to mention, that the rosy demand growth estimates out there, also supportive of prices, of late, seem to discount the significant headwinds currently faced by the key demand growth region: Asia.
If the outages don't resolve rapidly, then oil prices will remain well-supported. But history has shown that industry is incredibly resilient and incredibly able to return to service, after all kinds of adverse episodes. The market could become well-oversupplied, again, causing prices to easily correct back to $35 per barrel. True clearing of the supply-demand balance is unlikely until 2017.
Commentary by John Kilduff, a partner at Again Capital, an investment-management firm that specializes in commodities. Follow him on Twitter @KilduffReport.
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