Too Much Oil in 2020: So Says IEA

Via Bloomberg we learn that oil supply growth is likely to increase faster than demand:

Even though growth in world oil demand will accelerate to 1.4 million barrels a day in 2020, it will be eclipsed by a 2.3 million barrel-a-day surge in output, as the ongoing boom in U.S. shale is augmented by new fields in Brazil, Norway and Canada.

The assumption in demand growth is based on the US and China coming to a resolution on trade. Also, half of the supply growth would come from US shale.



CNBC gives some clarify that isn't in Bloomberg's article regarding oil demand in 2019:

The energy agency said it now expects oil demand growth to reach 1.2 million barrels per day (b/d) this year. That’s a downward revision of 100,000 b/d from the IEA’s previous projection. 

Here's the link to the IEA summary, which also states that OPEC is sitting on "3.2 mb/d of spare capacity." Ouch. This doesn't really look good for my long standing thesis that we will have an oil spike in the near future.

Bloomberg has some additional demand forecasts for 2019 from various other sources:

Wall Street has been turning more pessimistic. Morgan Stanley said it expects growth of 1 million barrels a day, while JPMorgan Chase & Co. sees 800,000 barrels a day. That which would be the lowest growth rate since 2011. If demand grows by less than 600,000 barrels a day this year, it would be the weakest since 2009, according to IEA data.

OilPrice had this quote based on findings from Federal Reserve Bank of Dallas:

According to the Federal Reserve Bank of Dallas, the breakeven prices for producing oil in the Delaware Basin is $49 per barrel and $48 per barrel in the Midland Basin, both of which are in the Permian. Meanwhile, what the Dallas Fed classifies as “other U.S. nonshale” has a breakeven of $49 per barrel. So, despite all the hype, shale is not more competitive on a cost basis than conventional and offshore production. 

If oil supply is going to swamp oil demand in 2020, why would any bank continue to lend to shale producers? As of this writing, WTI was $52.52. I would have to assume prices will likely stay around this level in 2020 if not go lower. We're barely above break even. Would banks want to take the chance of giving capital to shale producers? We'll find out.