Declining production in China, one of the world’s largest oil consumers, could be a catalyst for ETFs such as BNO and USO. In addition to China, supply from the Asia-Pacific region is expected to fall over the next several years due to poor oil infrastructure investment.
However, oil traders are concerned over how fast U.S. shale oil producers will increase production to capture the rising prices. Rig counts have recently ticked higher and with credit and earnings issues improving for some U.S. shale drillers, those companies may seize the opportunity to exploit higher pricing in the near-term.
“Global production is expected to have increased by 1.6 million barrels per day in the fourth quarter of 2016, with OPEC accounting for 0.9 million barrels per day, or 55 percent of this increase, the EIA said,” reports OilPrice.com. “The EIA estimates that total global production averaged 96.4 million barrels per day in 2016. Global production is expected to increase to 97.5 million barrels per day in 2017 to 98.9 million barrels per day in 2018.”
OPEC has already agreed to reduce output by 1.2 million barrels per day. After the non-OPEC producers’ cuts, total reduction now represents almost 2% of global supply.
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