U.S. shale oil production and exports have contributed to global oversupply in recent years, which, in turn, has amplified pressure on OPEC to implement production cuts to keep crude oil prices from collapsing to untenable levels. That’s led to an agreement among most OPEC countries and nearly a dozen other non-member producing countries — together known as OPEC-Plus — to limit production, an accord that’s remained in place since January 2017. However, oversupply conditions now are also prompting U.S. oil and gas producers to pull back on their planned capital expenditures for 2020, suggesting a slowdown in U.S. production growth later this year and into 2021. Recent global oil supply and demand forecasts by the International Energy Agency (IEA), the U.S. Energy Information Administration (EIA) and OPEC itself suggest that such a slowdown, if it materializes, could present a window of opportunity for OPEC-Plus to relax its quotas and potentially reclaim some of its lost oil market share, at least for a time. Today, we examine what the recent changes in monthly data from IEA, EIA and OPEC indicate about potential shifts in the OPEC versus non-OPEC oil supply and demand balance and what that could mean for OPEC’s role in meeting global demand.
In Part 1 of this blog series, we described how OPEC-Plus, including 10 non-member oil-producing countries, have managed oil supply since January 2017 under an agreement aimed at preventing a repeat of the oil-market collapse of 2014-16. Reducing supply from the 22 OPEC-Plus countries had the intended effect of supporting global oil prices. But, as expected, OPEC members’ market share fell as a result, while the share held by non-OPEC producers has increased. Production gains in the U.S. have been the most dramatic, with crude oil production growing from 8.8 MMb/d in 2014 to 12.2 MMb/d in 2019, and domestic exports of all liquid hydrocarbons have climbed from 5.3 MMb/d to 8.5 MMb/d in the four years since the U.S. lifted its ban on most crude oil exports. However, as we noted in the previous episode, U.S. producers are now signaling a slowdown in their growth (see Can’t Afford to Love You). What could that mean for the global oil supply distribution and overall market balance?
Recent changes in oil supply and demand projections from OPEC, IEA and EIA provide some scenarios, including a potential shift in 2021 that could ease OPEC’s supply management woes to an extent, at least for a time. We start with a brief overview about the data in these reports and expectations for 2020, before turning our attention to the projected shift in 2021. Because markets look more intently forward than backward, the projections of oil supply and consumption in these data-rich monthly reports receive the most attention from analysts, even though they, like all forecasts, are fallible. The three agencies provide monthly updates of quarterly and annual forecasts of oil supply and demand fundamentals by country that reflect changes to important market factors, such as new impediments or stimulations to economic growth and unforeseen supply interruptions. In addition to the oil supply and demand projections, the reports provide data and analysis on activities integral to price movements, such as storage, refining and shipping. Each agency takes a slightly different approach; for details, see footnote #1.
To access the remainder of Everybody Wants To Rule The World, Part 2 - Changes Ahead for Global Oil Supply Management? you must be logged as a RBN Backstage Pass™ subscriber.
Full access to the RBN Energy blog archive which includes any posting more than 5 days old is available only to RBN Backstage Pass™ subscribers. In addition to blog archive access, RBN Backstage Pass™ resources include Drill-Down Reports, Spotlight Reports, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. If you have already purchased a subscription, be sure you are logged in For additional help or information, contact us at email@example.com or 888-613-8874.