CRUDE glut is coming? Sentiments are definitely turning bearish. Most are now insisting that with each passing month, the possibility of crude price slide is growing. Rising US shale output in conjunction with increments from Libya, the North Sea and the possibility of rise in exports from Iran, seems weighing on market sentiments. Stakeholders are conceding too. Crude oil prices could soften by mid-2014 due to some weakness in demand, Nizar Al-Adsani, chief executive of state-owned Kuwait Petroleum Corp (KPC), told reporters last week. “Prices are still healthy above $100. Demand is still there. Demand will definitely soften up. They'll probably soften up in the mid of this year,” Al-Adsani said on the sidelines of an energy conference last week. Markets took a bearish turn immediately after news of a deal between Western nations and Iran to curb its nuclear program broke out. And in the meantime, production too resumed from Libya and a key North Sea oilfield. Crude output from Libya has tripled since last summer to more than 600,000 bpd. Libya could add 1million bpd to global within the year. Oil futures were also pressured by declines in gasoline futures and equities and a much weaker-than-expected US jobs data, dashing hopes of economic recovery in the world's largest oil consumer. Analysts now believe at least1 million bpd of Iranian oil, kept off the market by sanctions over its nuclear program, would return soon. “Up to 1 million barrels of Iranian oil per day could become available,” Commerzbank analysts said in a note to clients. “Unless oil production is cut elsewhere, this would give rise to a considerable oversupply on the oil market, which would weigh on prices.” The price of oil will come under “serious downward pressure” in the wake of the nuclear deal between Iran and six world powers, a leading analyst told CNBC last week. “For the oil market, this could potentially allow visibility to Iranian exports (and their) return to the market – that's about a million barrels per day (bpd) or so that's currently shut off,” Neil Atkinson, head of analysis at specialist business information service, Lloyd's List Intelligence argued. The possible return of oil majors to Iran, after Tehran indicated it was ready to roll red carpet – could also prove to be another factor dampening the oil market sentiments. “That event, in conjunction with other possible supply increases means that at the end of 2014 we could be in a situation where the oil price is under serious downward pressure,” Atkinson added. And in the meantime, the commodities cycle that sent prices rising almost fourfold over 10 years is reversing and will eventually drive raw materials into a structural bear market, Goldman Sachs Group Inc. said. Deutsche Bank too now believes that crude oil is currently the mostly richly priced commodity in the world. Michael Lewis, the bank's commodity strategist, underlined that markets face a “new oil supply glut” as three forces combine. US shale will add 1million bpd to global supply for the third year running; Libya will crank up shipments after a near collapse in 2013 and Iran will come out of hibernation. “This will push OPEC spare capacity to levels last seen in the depths of the financial crisis in 2009,” he said. The US Energy Information Administration (EIA) is now estimating that in the second half of the decade US crude oil production is likely to be close to its 1970 peak. By next year, the EIA thinks, the US could be relying on imports for just 24 percent of its liquid fuel consumption, down from over 60 percent in 2005. The approaching glut may not only weigh on market sentiments, it has the capacity to disturb the geopolitical order of the day too, some believe. Would the renaissance in the US oil fortunes going to impact its foreign policy direction, remains an important, yet still to be determined, variable in the emerging global energy equation. A century of oil wars are documented, setting the backdrop of many an alignments and realignments in past. Could this too be in for a change now? Recent US foreign policy decisions have provided oxygen to the ongoing discussion. After all Washington in no more that dependent on imported crude, as it used to be until a few years back. The much discussed and strategically important North American energy independence is well in sight now – allowing greater maneuverability to Washington on policy issues. Yet that is not the end of the story. Despite a glut in sight and North America as a continent heading towards the long cherished strategic objective of energy independence, some Washington heavy weights are firing early warning shots too. The US is still vulnerable to oil shocks, they are now insisting. The US remains vulnerable to oil price shocks caused by disruptions in the Middle East and other producing regions in spite of the North American shale boom, Ed Crooks reported quoting a commission of former generals and senior officials, led by Admiral Dennis Blair, a former director of National Intelligence and General Mike Hagee, a former commandant of the US Marine Corps. The commission also included Admiral Mike Mullen, the former chairman of the US Joint Chiefs of Staff, and four former ambassadors. “There's a lot of loose talk about the US being ‘oil independent', and how that removes the need for us to get involved in some of those parts of the world where we have been sucked in the past,” Admiral Blair said. “But however much the US is producing, oil is still a global market. So conditions in oil-producing areas will affect the US.” The commission argued that although physical crude flows into the US may be declining, that does not stop the economy being vulnerable to oil price shocks. Even if some of the global flashpoints are avoided, strong demand growth in emerging economies could mean that oil prices are pushed higher over time, especially if US production levels off and begins to decline slowly after 2020, as the EIA expects the commission argued. Admiral Blair said: “We don't know exactly what type of problems will emerge. But taking a chance on there always being adequate supplies is a foolhardy bet on the nation's energy future.” The shale oil boom was an opportunity for the US to strengthen its energy system to be less vulnerable to future shocks, he said. “Let's take advantage of the opportunity and not squander it. Let's not be sitting here in 2022, when US oil production is starting to decline again, and be in exactly the same position we were before,” the admiral argued. The commission also urged a more effective diplomatic approach to the Middle East and other oil-producing regions. Admiral Mullen said: “We have led far too frequently with the military first.” Who will have the last laugh on the global energy chessboard – is yet to be established!
