Hits to Americas oil output show global glut not invincible

By Terry Wade
HOUSTON, May 5 (Reuters) - Wildfires in Canada. Pipeline
sabotage in Colombia. Instability in Venezuela. U.S. frackers at
a standstill. Drops in oil output are happening so fast that it
looks as if the Americas alone could resolve global oversupply.
The 60 percent price slide of the last 23 months has been
consistently pegged to one problem: current global supply
exceeds demand by 1.5 million barrels per day (bpd).
But oversupply could evaporate quite quickly when seen
through the prism of current disruptions and declines in the
Western Hemisphere.
"Unplanned oil supply disruptions have been a key element so
far this year that have contributed to a tighter oil market than
was otherwise expected," analyst Guy Baber of Simmons & Co. told
clients on Thursday.
He also cautioned that if the disruptions were to linger
OPEC, which so far has not acted to curb output, would have
limited excess capacity to feed a tight market.
Consider this: The wildfire in Fort McMurray, at the heart
of Canada's oil sands region, has forced more than 640,000 bpd
out of production, according to Reuters estimates, and one
operator, Canadian Natural Resources Ltd CNQ.TO , said if it
loses power then its crude output would tumble about 80
percent.
U.S. output, already having plunged 800,000 bpd on a
precipitous drop in new drilling, is expected to slide another
800,000 bpd in the next five months, according to the Energy
Information Administration.
Latin America's crude oil production, suffering from under
investment, declined 4.6 percent in the first quarter of the
year to 9.13 million bpd, a loss of 441,000 bpd from the same
period a year ago, according to data from individual countries
and OPEC.
The largest decline was in Venezuela, which lost 188,000 bpd
in the first quarter as President Nicolas Maduro's government
wrestles a deep economic crisis.
Taken together, signs of tighter supply in the Americas
helped lift prices for U.S. benchmark WTI crude CLc1 to an
intraday high on Thursday of more than $46 a barrel, within
striking distance of a new three-month high.
Analysts at Baird told clients to "look for WTI gains to
accelerate if the contract pushes through last Friday's intraday
high of $46.78 per barrel."
Nonetheless, with Iran and Iraq ramping up exports, the
market still forecasts oversupply. In Europe, Brent crude
LCOc1 futures for delivery five years out were still only at a
small $10 per barrel premium to one-month contracts on Thursday,
a sign the "lower for longer" price scenario may linger.