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Oil Supply Disruptions Cause Temporary Rebalancing in Energy Market

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The recent supply disruptions in the global oil market surprised multiple banks and their respective analysts, who expected the supply glut to cause the market to stay unbalanced for awhile longer. The market is undoubtedly still in recovery mode due to excess supplies, but decreasing oil supplies and steady demand has somewhat lessened the downturn’s effect.

Various issues around the globe were the cause of the diminished oil supply. In Canada, raging wildfires forced oil producers to stop operations. In Nigeria, militant groups attacked oil pipelines which forced Chevron and Shell to withdraw their employees from the threatened areas.

Goldman analysts Damien Courvalin and Jeffrey Currie released a report on May 15 which stated that these halts in production have caused the demand for oil to surpass the level of supply. They expect the price of oil to reach nearly $50 by the second half of 2016. Another analyst, Francisco Blanch of Merrill Lynch, has faith that the U.S. oil price will reach $54 by the end of this year.

Another two analysts at Barclays stated that the oil market is “set on a course for rebalancing much faster than previously expected,” which leads them to believe that the price should remain stable for the foreseeable future.

These temporary cuts in supply have rebalanced the market for now. However, the analysts at Goldman recognize that “long-term surpluses can create near-term shortages,” so that when maximum production is resumed, the supply of oil will once again grow faster than demand. The supply may be surpassed by demand again during this glut, but the long-term view is that supply will outweigh demand for awhile.

Article written by HEI contributor Timothy McNally.

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