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Recently OPEC+ again agreed to cut production by 500 thousand barrels a day. On the one hand, it is good that all parties came to a compromise and stabilize the situation on the market. On the other hand, this situation someone might have to call the question: Yes, the volume of new reduction is not so large (for Russia it is less than one percent of total production), but this is not the first constraint. What’s next? Is OPEC+ and will be constantly reduce their production in favor of other countries and companies?In the oil sector, and particularly in the current configuration of the world “oil”, the exact answer to the question “what’s next” giving is practically impossible. However, there are certain grounds to assume that the coming year will be challenging, but the turning point for the industry in the sense that in 2021 the situation will improve. But in 2020 limitations in the framework of agreements on OPEC+ will need to save (now extended agreement, with an increase of cuts in the first quarter of 2019), and maybe a few to strengthen. Which points to this development?
First, recall the basic figures: world production of oil (including condensate and light ends) is about 95 million barrels per day, annual demand growth of approximately one million barrels per day (approximately one percent annually). The proposal is also growing, and from time to time faster than demand, and why there were restrictions of OPEC, and later OPEC+. In numbers there is some Convention: for example, they depend on how to account for light ends, whether to use tons or barrels (because oil are different and the density is different), and statistics from different sources often differ by hundreds of thousands of barrels. Nevertheless, the overall picture is.And now look at relatively short-term forecast (2020) to increase production, which has recently published company Rystad Energy. This analytical framework predicts a record (for decades!) the production increase, the “non-OPEC”: a year in extra 2.2 million barrels a day. What are these volumes: it is an American production (1.2 million), mainly shale and offshore (marine) production, primarily in Brazil and Norway. To a lesser extent, the growth will show Canada, as well as “rising star” of the marine oil — Guyana. This small country, by the way, it’s time to pay attention: it is planned to produce 750 thousand barrels per day by 2025.
Thus, in this configuration, we see a surplus, which will put pressure on prices. Here, however, we should make one stipulation. The decline in the number of working drilling rigs in the U.S. is very likely that the forecast for the us “slate” looks too optimistic. In the previous article on the subject of oil, three months earlier, we wrote that the number of drilling rigs has decreased over the year by 20 percent, from 712 to 885. Then it might seem “down.” But since then the decline has increased — now running 667 drilling. Perhaps the real “bottom” is still evident now, as long as the fall has stopped in the last week was an increase of four rigs. But this is not accurate.For the extraction of shale oil “to podporovat” you should always, therefore, it would be strange if such a strong fall led to the same growth rate in production, and in the past year (over one million barrels per day). Yes, there is the factor of the so-called unfinished wells (when a well is ready and so the rig is not needed, but is waiting for the fracking to start mining). There is the factor of scientific and technological progress, but it largely already been played out in 2015, when the companies had to survive in conditions of extremely low prices.Anyway, the latest forecast of another consulting organization, IHS, Markit, which is expected to increase shale oil only 440 thousand barrels, looks more real.In this case (if the production in the US will be, let’s say 500 thousand), the global growth in supply will drop to 1.5 million, taking into account the growth of demand (one million barrels) will give us an excess supply of only 500 thousand. This, incidentally, corresponds to the figure, the final reduction under OPEC+. (Leave out the fact that some countries have exceeded the reduction plans, perhaps they will keep this fulfillment in the face of new restrictions.)
But the main thing is what happen after 2020?Shale oil to make predictions difficult. The same IHS predicts almost no growth in 2021 with slow subsequent recovery. Rystad Energy is generally more optimistic in its view, even with 45(!) dollars per barrel of WTI oil shale mining will only stop growing but will not decline. In any case, falling oil shale extraction, no one is waiting, but more importantly, the volume of oil shale production, though with a small lag, is a function of oil prices, which in turn depend on a host of factors.In this sense, is much more predictable second key source of new supply, as mentioned above: the offshore production in different regions. It is much easier to predict than the “slates”. This is generally long-term projects with clear deadlines and volumes. And, unless some force majeure at startup, there is no reason to doubt the forecast. It is important to note that offshore production is already almost a third (27 million) of the total production of oil. Moreover, it accounts for the main increase offers, as the major land deposits have been produced, and new investments on the ground rather compensate for the decline in the old sites. (Except for that middle Eastern production, but it is constrained by OPEC deal+.) In this context, it is interesting that as early as 2020, according to forecasts of another analyst firm, Sanford Bernstein, offshore oil production will peak, and in 2021 will begin to decline.Total: we have 95 million of annual world production. One million in average annual growth in demand. Next year the supply will increase by 1.5-2 million. The remaining 500 thousand barrels, or a little more has already offset OPEC+.
In 2021 there will be no increase in “offshore” (new projects are started, but they only compensate for the decline of the old), decrease (down to zero) the growth rate of shale extraction. Thus, it appears that 2020 will probably be one of the most difficult cuts OPEC+: offshore oil production shows a significant increase, and there is the inertia of the growth of shale oil in the United States.
This does not mean that after 2020, prices will rise. Then, of course, as always, the unknown is the volume and growth of demand (and then a possible crisis, which could nullify the increase in demand, and slowly, but pressing electric cars), and the gradual removal of restrictions on OPEC+, and a “slate” will rise, if prices rise more than, say, to $ 75 per barrel. Already started and new projects on marine mining. And the most radical adherents of “energierecht” expect peak oil demand already in 2030, if not sooner.It is no exaggeration to say that the current configuration when prices are level 55-75 dollars, and OPEC will balance the oil shale extraction and other factors, then increasing, and then decreasing its share in the market can continue for decades. But few nerve-wracking situation of having to maintain price OPEC countries+ all the time needed to increase the reduction, it is hoped, will disappear.Alexander Sobko