Despite the sound bites about a slowing shale revolution, supply growth continues to add to the crude market woes. This time, however, this is a global phenomenon.
Geopolitical spikes in the crude markets have, in fact, resulted in a boost to hedging, allowing the US shale producers to maintain higher output at a point in time when many have been predicting shale growth slowdown.Pundits are taking note too.
“Global oil markets will remain well supplied this year, with a possible overhang of some 1 million barrels per day (bpd),” good, old friend Fatih Birol, the executive director at the International Energy Agency told Reuters.
“Non-Opec production is very strong. We still expect production coming from, not just the United States, but also Norway, Canada, Guyana, among other countries,” Birol emphasised. “Therefore, I can tell you that the markets are, in my view, very well supplied with oil, and as a result of that, we see prices remain at $65 a barrel.”
Considerable output growth is on the horizon. Norway is about to experience a sharp jump in its production. After a steady decline over several years, Norwegian output is set for a 43 per cent increase between 2019 and 2024, its Petroleum Directorate reported, reaching 2.02 million barrels per day in 2024.
The US crude oil production also rose to an estimated record-high of 13m bpd last week, the US Energy Information Agency reported. As per the Organisation of the Petroleum Exporting Countries (Opec), the US liquids output will reach 20.21m bpd in the fourth quarter of 2020 — almost meeting the US demand of 21.34m bpd.
Oil production is also set to grow in energy-rich Canada. It is forecasted to grow at 4.2pc annually between 2020 and 2024.
New discoveries have also been made in Suriname. Consulting firm Wood Mackenzie estimates that the first discovery at Maka Central-1 contains 300m barrels of oil, 150m barrels of condensate and 1.4 trillion cubic feet of gas. The firm believes, there remains a potential for further finds in the same block.
A Rystad Energy report is underlining that the world’s oil and gas explorers are powering ahead, discovering 12.2bn barrels of oil equivalent (boe) in 2019 — the highest since 2015. Last year 26 discoveries of more than 100m boe were recorded.
In Russia, Gazprom anno¬unced two discoveries in the Kara Sea, Dinkov in the Rusanovsky and Nya¬rmeyskoye in the Nyar¬meysky block. Rystad Energy estimates Gazprom’s 2019 discoveries to hold combined recoverable resources of around 1.5bn boe.
And in the meantime, demand growth continues to be sluggish. “We are expecting a demand growth of slightly higher than 1m barrels per day,” Birol told Reuters.
Apparent demand for oil in China is set to increase by just 2.4pc in 2020, less than half the 5.2pc growth estimated for 2019, CNPC’s research division said.
Chinese gas demand is also set to slow down to 8.6pc this year from an estimated 9.6pc last year.
In the backdrop, the Opec is not optimistic. It now expects lower demand for its crude in 2020, as rival producers grab market share and the United States looks set for another output record. Opec has now lowered 2020 demand forecast on its crude by 0.1m bpd to 29.5m. That would be around 1.2m bpd lower than the entire 2019.
All this means that except sudden spikes in prices due to geopolitical factors or possible production outages in a major producer, oil prices this year will remain largely range-bound.