Oil Market Disruption for 2018 is Closer to Home

January 05, 2018

Iran, one of the largest exporters of oil, rang in 2018 with a wave of political demonstrations across the country. Citizens gathered to protest Iran’s spiraling economic conditions, which include a 12% unemployment rate, high inflation, and elevated prices of basic goods such as eggs and dairy products. While energy analysts monitor such geopolitical events with due concern, the consensus is that the Iran riots have not caused a significant disruption of supply to the global oil market.

Instead, analysts are pointing to elevated oil production in the U.S., and the subsequent decline in imports. As depicted in this week’s Chart of the Week, net imports of oil to the U.S. dropped more than 65% in the past decade due to rising domestic production. Numerous U.S. shale drillers have pledged to expand exploration if crude oil prices hold above $60, driving imports down even further.

This rise in U.S. oil production has proved a headache for the Organization of Petroleum Exporting Countries (OPEC) and its affiliates, which have actively restrained output since 2016 in hopes of buoying prices. These cutbacks have successfully reduced oil inventories in these countries and the output restraint is set to remain in place through the end of this year. However, global supplies remain high and OPEC’s plan depends on continued compliance from its members. These factors coupled with U.S. production momentum could keep oil prices in check through 2018.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.