Thursday, January 16, 2020
(January 16, 2020) — Oil production from non-OPEC countries is expected to grow at record speed in 2020, reports Norway’s Rystad Energy, creating a headache for the Organization of the Petroleum Exporting Countries, which was meeting in Vienna in early December to discuss extending oil production cuts.
Rystad Energy predicts that total non-OPEC production, crude oil and condensate, will grow by about 2.26 MMbbld in 2020, creating a challenge for OPEC and Russia as they attempt to balance the global oil market this year. The non-OPEC rise in output will eclipse the 40-year-old record by a wide margin.
“The record-high production growth from non-OPEC tight oil and offshore puts significant pressure on OPEC’s ability to balance the oil market in 2020,” says Espen Erlingsen, head of upstream research at Rystad Energy. “Rystad Energy believes that OPEC will need to extend and deepen production cuts if it has any hope of supporting the oil price in the near-term.”
Looking at the year-over-year change in total non-OPEC oil production from 1960—the year the cartel was founded—toward 2020, production from non-OPEC countries grew the most in 1978, rising 1.96 MMbbld thanks to increases from Russia, the U.S., the United Kingdom, and Mexico.
However, this 40-year-old production growth record may be beaten this year. Tight oil is expected to be a key contributor to the non-OPEC oil output expansion, contributing around 1.35 MMbbld of the 2.26 MMbbld increase, according to Rystad Energy analysts. Offshore will balloon by an impressive 1.25 MMbbld, nearly 900,000 bbld of which will come from deep-water.
“In a unique turn of events, it is the offshore segment that will drive much of 2020’s non-OPEC supply growth,” Erlingsen says. “The record-high production growth this year comes almost exclusively from tight oil and offshore.” The U.S. tops the list of non-OPEC countries that will see the quickest production growth in 2020, driven by tight oil output. Norway and Brazil, the world’s two dominant offshore players, follow close behind.
Norwegian production growth will in large part be driven by the North Sea Johan Sverdrup field, which came online in October, as well as similar projects such as Oda, Valhall West Flank, and Trestakk. “Although a rather mature producer, Norwegian production growth may reach an all-time high this year, boosted by a bevy of young finds,” Erlingsen observes.
The same can be said of Brazil, where record-high production growth is expected this year thanks to the Buzios, Lula, and Lara projects. Rystad Energy forecast recently that Brazil’s state oil company, Petrobras, is set to become the world’s largest oil producer among publicly listed companies by 2030.
Barring additional oil production cuts by OPEC in 2020, Rystad Energy forecasts a substantial build for global crude oil stocks and a corresponding drop in oil prices. A showdown took place in Vienna Dec. 5-6 as OPEC member countries, plus Russia, gathered in the Austrian capital to discuss oil output levels for 2020. “We have a clear message to the OPEC-plus countries: a roll-over of the current production agreement is not enough to preserve a balanced market and ensure a stable oil price environment in 2020,” asserts BjØrnar Tonhaugen, head of oil market research at Rystad Energy. “The outlook will be bleak if OPEC-plus fails to agree on additional cuts.”
According to the energy consultancy’s estimates, the global oil market will be fundamentally oversupplied to the tune of 800,000 bbld in the first half of 2020. Empirical evidence has demonstrated that a 1-MMbbld surplus of oil can be expected to cause an oil price decline of around 5% per month, implying a potential drop of 30% over six months.
“If OPEC and Russia don’t extend and deepen their cuts, we could see Brent Blend dip to the $40s this year for a shorter period,” Tonhaugen says. “In order to ensure a balanced market, our research indicates that OPEC would need to reduce crude production to 28.9 MMbbld—a drop of 800,000 bbld from the levels seen in the fourth quarter of 2019—given our forecast for demand, non-OPEC supply, and the impact of new IMO 2020 regulations on global crude runs.”
New shipping fuel regulations, the so-called IMO 2020 effect, are expected to create more demand for crude oil in the near-term. However, if the actual effect of the International Maritime Organization rules on crude demand turns out to be zero, the call on OPEC—the amount of OPEC oil needed to meet demand—drops by 1.9 MMbbld year on year to 28.3 MMbbld.
“Despite decent cut compliance from the group as a whole, and large involuntary declines in Iran and Venezuela in 2019, OPEC’s current crude production of about 29.7 MMbbld is far above the call for 2020,” Tonhaugen remarks. “Alas, without deeper cuts taking effect in January 2020, large global implied stock builds are in the cards.”
(SOURCE: The Weekly Propane Newsletter, January 13, 2020, available by subscription)
Rystad Energy predicts that total non-OPEC production, crude oil and condensate, will grow by about 2.26 MMbbld in 2020, creating a challenge for OPEC and Russia as they attempt to balance the global oil market this year. The non-OPEC rise in output will eclipse the 40-year-old record by a wide margin.“The record-high production growth from non-OPEC tight oil and offshore puts significant pressure on OPEC’s ability to balance the oil market in 2020,” says Espen Erlingsen, head of upstream research at Rystad Energy. “Rystad Energy believes that OPEC will need to extend and deepen production cuts if it has any hope of supporting the oil price in the near-term.”
Looking at the year-over-year change in total non-OPEC oil production from 1960—the year the cartel was founded—toward 2020, production from non-OPEC countries grew the most in 1978, rising 1.96 MMbbld thanks to increases from Russia, the U.S., the United Kingdom, and Mexico.
However, this 40-year-old production growth record may be beaten this year. Tight oil is expected to be a key contributor to the non-OPEC oil output expansion, contributing around 1.35 MMbbld of the 2.26 MMbbld increase, according to Rystad Energy analysts. Offshore will balloon by an impressive 1.25 MMbbld, nearly 900,000 bbld of which will come from deep-water.
“In a unique turn of events, it is the offshore segment that will drive much of 2020’s non-OPEC supply growth,” Erlingsen says. “The record-high production growth this year comes almost exclusively from tight oil and offshore.” The U.S. tops the list of non-OPEC countries that will see the quickest production growth in 2020, driven by tight oil output. Norway and Brazil, the world’s two dominant offshore players, follow close behind.
Norwegian production growth will in large part be driven by the North Sea Johan Sverdrup field, which came online in October, as well as similar projects such as Oda, Valhall West Flank, and Trestakk. “Although a rather mature producer, Norwegian production growth may reach an all-time high this year, boosted by a bevy of young finds,” Erlingsen observes.
The same can be said of Brazil, where record-high production growth is expected this year thanks to the Buzios, Lula, and Lara projects. Rystad Energy forecast recently that Brazil’s state oil company, Petrobras, is set to become the world’s largest oil producer among publicly listed companies by 2030.
Barring additional oil production cuts by OPEC in 2020, Rystad Energy forecasts a substantial build for global crude oil stocks and a corresponding drop in oil prices. A showdown took place in Vienna Dec. 5-6 as OPEC member countries, plus Russia, gathered in the Austrian capital to discuss oil output levels for 2020. “We have a clear message to the OPEC-plus countries: a roll-over of the current production agreement is not enough to preserve a balanced market and ensure a stable oil price environment in 2020,” asserts BjØrnar Tonhaugen, head of oil market research at Rystad Energy. “The outlook will be bleak if OPEC-plus fails to agree on additional cuts.”
According to the energy consultancy’s estimates, the global oil market will be fundamentally oversupplied to the tune of 800,000 bbld in the first half of 2020. Empirical evidence has demonstrated that a 1-MMbbld surplus of oil can be expected to cause an oil price decline of around 5% per month, implying a potential drop of 30% over six months.
“If OPEC and Russia don’t extend and deepen their cuts, we could see Brent Blend dip to the $40s this year for a shorter period,” Tonhaugen says. “In order to ensure a balanced market, our research indicates that OPEC would need to reduce crude production to 28.9 MMbbld—a drop of 800,000 bbld from the levels seen in the fourth quarter of 2019—given our forecast for demand, non-OPEC supply, and the impact of new IMO 2020 regulations on global crude runs.”
New shipping fuel regulations, the so-called IMO 2020 effect, are expected to create more demand for crude oil in the near-term. However, if the actual effect of the International Maritime Organization rules on crude demand turns out to be zero, the call on OPEC—the amount of OPEC oil needed to meet demand—drops by 1.9 MMbbld year on year to 28.3 MMbbld.
“Despite decent cut compliance from the group as a whole, and large involuntary declines in Iran and Venezuela in 2019, OPEC’s current crude production of about 29.7 MMbbld is far above the call for 2020,” Tonhaugen remarks. “Alas, without deeper cuts taking effect in January 2020, large global implied stock builds are in the cards.”
(SOURCE: The Weekly Propane Newsletter, January 13, 2020, available by subscription)
