Oil things considered:Cutting through the oil industry data:October 2017

Brent crude hit a YTD high in September, and prices continue to stabilise at muchimprovedlevels.。

    Inventories are continuing their steady downward trend. US commercial stocks arenow only 8% above their five-year average vs 21% at the peak in February, whilelatest (August) OECD data shows a halving of the surplus since the start of this year.。

    OPEC supply was broadly flat in September, with compliance at well over 80% but anet cut of only 0.5mbd after factoring in the recovery in Libya. The OPEC agreementto rein in supply is scheduled to run to end-1Q18, but there are signs that keymembers are edging towards extending it to year-end 2018.。

    The US oil rig count has stalled and is now down 3% from its August peak.Meanwhile, productivity data still shows average productivity per rig flat-to-down inaggregate, with increases in the Bakken a notable exception. The rate of wellcompletions is still growing, but it is not yet matching the pace of wells drilled so thenumber of drilled, uncompleted wells (DUCs) continues to rise。.Latest weekly data was affected by precautionary hurricane shut-ins, but the priorweek’s data showed US crude supply up 1.0mbd y/y, and total supply (includingNGLs) up 1.2mbd. However, latest revised monthly data for crude is showingvolumes around 200kbd lower than this, and October’s Drilling Productivity Reportsaw another downgrade to Eagle Ford production estimates. Nevertheless, thestrong momentum of US tight oil supply should continue for now, not least ascompletion activity catches up and DUCs fall. However, we remain convinced thathigher prices than current levels are needed if this momentum is to be sustained inthe longer term.。

    We think the market needs sustained long term growth in US tight oil supply in orderto fill an impending supply gap as conventional non-OPEC output starts to decline inthe next few years. An extension of the OPEC cuts through 2018would help keepthe market tight until that point is closer to reality. Our Brent price assumptionsremain US54.4/b for 2017e, rising to USD65/b for 2018e and USD70/b for 2019e.。