Part 1: Oil Prices to Rise in 2nd Half 2018?

Are oil prices set to rise in the 2nd half of 2018?

Via Bloomberg, oil inventories are set to decline (via an OPEC report):

First: OPEC members production dropped by 201,400 barrels per day (bpd) in March 2018 versus February 2018.

Second: Venezuela is producing 480,000 bpd below their quota. Ouch.



Third: The oil-inventory surplus in developed nations has declined by almost 90 percent since the cuts by OPEC and its partners began last January, to just 43 million barrels, the report showed. If OPEC output remains at current levels, world stockpiles would contract at a rate of about 1.3 million barrels a day in the second half of the year, the report indicated.

I will admit I'm not totally sure what the 1.3 million barrels a day means or directly refers to. If the inventory surplus declines by 1.3 million barrels a day, then that 43 million disappears rather rapidly.

Oilprice.com puts some context by saying the 43 million barrels is the five-year average of inventory. Therefore, even if inventory levels do decline at up to 1.3 million barrels a day, it would just mean that inventory levels start to fall below the five-year average. Also of interesting note from the blog post is that demand is at 1.65 mb/d -- I'm assuming that means an increase over 2017. If so, it should be noted that IEA (at the start of 2018) had expected demand to increase at 1.3 mb/d. A definite higher demand than previously expected.

Fourth: If prices start to rise dramatically due to inventory levels dropping below the five-year average, don't expect OPEC to lift their caps. The Bloomberg article indicates that there is a desire (Saudi Arabia) to keep the caps in place until the end of 2018.

One question is: what about US shale? Well, I'd say just off the top of my head that if the projection is that inventories will decline at 1.3 million barrels a day, I'd assume this forecast was made taking into account US shale.