What does the supply picture look like? The prospect of an extra 1m barrels per day of oil hitting the market would normally be considered uniformly bearish for prices. But part of the Saudi-led decision to raise production stems from the risk of less global supplies later this year. Venezuela’s economic and political crisis has already cut the Opec member’s output by 700,000 b/d in the past 12 months, taking producer curbs well over their initial targets and helping to propel prices above $80 a barrel last month. Iran, the third-largest Opec producer, faces the reimposition of US sanctions on its oil exports after the Trump administration’s withdrawal from the nuclear deal.
Meanwhile, Libya, another Opec member, has held output close to 1m b/d for much of the past 18 months before renewed fighting knocked out 400,000 b/d of production last week and damaged one of its oil ports. Paul Horsnell at Standard Chartered said there could be a further 1.5m to 2.3m b/d drop by the end of this year just from those three countries. “Venezuela could certainly lose another 500,000 b/d from May production — that’s already started — and Iran could be 1m lower by the end of the year,” he said. “We could lose 2.3m b/d in a worst-case scenario if Libya went through a sustained period of supply insecurity.”
Meanwhile, the US shale industry, which has grown sharply during the past 18 months, is finding its top field — the Permian basin in Texas — starting to push up against pipeline constraints for getting the oil to market. That should see supply growth slow until more lines can be opened in 2019. “Price risk is still very much to the upside,” said Mr Horsnell. “It’s much easier to see prices jumping $10-$15 a barrel than falling by that amount.”