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Our market view - week 24

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Brent futures rose last week on improvements in US jobs data and concerns about new confrontation between Sudan and South Sudan.
The oil price gains should be limited because the market is well supplied later in the year, with strong growth in North American supply racing ahead of demand. OPEC has little room to pump more due to the US oil boom. The Bakken Shale is now approaching its billionth barrel of production, and output is set to top 1 mbd within the next year. Continental Resouces recently raised its oil-in-place estimate for the play by 57% to 903 bn bbls, or 32 billion barrels of recoverable oil. The North Dakota Industrial Commission believes the play could be producing 1.6 mbd before 2020.
US crude oil imports have declined since peaking at 10.1 mbd in 2005. This year, net crude oil imports have averaged 7.6 mbd. The EIA expects imports to drop to 5.7 mbd by 2014. At the same time, the US has emerged as a major exporter of refined products and NGLs over the past five years. In 2007 the US imported 2 mbd, while in 2012 net exports to world markets were 1.5 mbd.


Medium-term oil market balance (Source: IEA)


Ample supply and low summer-time demand are pushing gas prices lower. Several LNG cargoes are currently bound for Britain, easing supply worries. Demand has fallen below 200 mcm/d, which is half of the winter peak demand. The NBP Day-ahead fell to the lowest level since October, but is still 9% above the same period last year. The Interconnector is set to shut down for maintenance 12-27 June, which will put further downward pressure on short-term NBP contracts.

However, the downside in gas prices is limited by supply uncertainty and the need to refill European gas storage ahead of the winter.