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Oil At A Crossroads While Pipelines Get Bogged Down

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For a third straight week, the U.S. has witnessed something never seen before — oil exports exceeded 1 million barrels a day — and the news can’t be seen as very good for OPEC.

Quick rewind to three years ago at this time when led by Saudi Arabia, OPEC decided to open the proverbial oil floodgates in the hope that a surplus of crude would undermine the economic viability of U.S. shale production and defend OPEC market share. The plan failed and for the past 14 months, OPEC and a handful of non-OPEC oil producers like Russia have been trying to throttle back of adding to the global oversupply.

Trying to put the proverbial oil genie back in its barrel has met with only limited success in achieving compliance at reducing production by some 1 million barrels a day and rising global demand. However, the increased output of producing nations, not held back by the agreement of the 23 nations, such as the U.S., Canada, Mexico, Libya and Nigeria, appears to be running counter to the NOPEC/OPEC cartel. Not surprisingly. OPEC went as far as to ask U.S. shale oil producers to cut back on output in a sign that the global rebalancing for oil won’t likely happen until the beginning of the next decade.

Still, there are signs Libya and Nigeria are likely to join the global output curb with Saudi Arabia and Russia, the world’s two top producers, willing to extend their cuts and perhaps go a little deeper in December.

Auguring well for most producers is the fact that oil continues to hold at the $50 to $55 a barrel range, while global demand continues to rise. News late last week that Canada, home to the world’s third-largest proven oil reserves, will not see any major new builds of pipelines to allow its vast untapped landlocked oil to reach tidal waters, adds to the view that the world will soon see a serious supply downturn rather than just the much sought after rebalancing of crude supply with demand. The TransCanada Energy East Pipeline proposal was withdrawn by the company after Ottawa changed the terms of approval to include a unique requirement that the pipeline not cause any “indirect” impact on increasing global carbon “emissions” somewhere downstream. And that was a deal killer. Carried to its logical extent, no future pipelines are likely to be built in Canada effectively eliminating its rising output.

In the short term, oil and pump prices appear to be on the same level price plain but the future holds a great likelihood of higher values due to shifting economic and political realities.

Senior Petroleum Analyst, Canada

Dan is a skilled and noted bilingual (French and English) consumer advocate specializing in energy and current affairs. Known as Canada's “Gas Guru,” he founded tomorrowsgaspricetoday.com to better help motorists anticipate the price of gasoline in advance across Canada. He has over three decades of experience in the petroleum industry, as a parliamentarian and an analyst.