US policy cranks up the risks to oil supply and price - Oils Research
Geopolitics is never far from the fray. The oil market was chronically oversupplied a few months ago. Now Brent is back over USD 70/bbl as tension builds around some of OPEC’s bigger producers. Could prices go higher? For the answer, I turned to Ann-Louise Hittle, VP Oils Research.
Q - What worries you most in the short term?
A - Rising geopolitical tension around Iran. The end of sanctions waivers will reduce exports from around 1.2 million b/d today to 0.7 million b/d this summer. That’s less than a third of what they were selling in 2017, and takes another 0.4-0.5 million b/d out of global supply, with only China and India still prepared to buy Iranian crude. Should the US succeed in its goal to reduce Iran’s exports to zero, it would worsen supply tightness materially. The other big concern is that as economic pressure bubbles up, Iran responds to US pressure with a knock-on effect for regional stability.
Q - What about Venezuela and Libya?
A - The stalemate in Venezuela looks set to be protracted and the recovery of supply slower. We’ve cut our 2020 forecast to 0.83 million b/d, flat on 2019. So, through next year, Venezuelan production is a third of what it was in 2014. As for Libya, we just reduced our 2019 forecasts by 50 kb/d to 0.9 million b/d. The escalating civil war there shouldn’t be underestimated as a risk to global supply.
Meantime, the US keeps pumping
Yes, and dominating non-OPEC production growth. We forecast 1.9 million b/d of US liquids growth in 2019, only marginally down on last year’s phenomenal 2.2 million b/d. The Permian is the driving force, contributing two-thirds of this year’s increase. The bidding war for Anadarko underlines the attraction of Permian tight oil growth to Big Oil, and we’ll see more consolidation. The bigger companies have access to capital and have only just begun to industrialise the play. Permian volumes will grow year-on-year for the foreseeable future.
Q - Is the rest of non-OPEC growing, too?
A - Overall, yes. Production outside the US stagnated in the immediate aftermath of the price crash. The industry adapted and cut costs, and supply is growing again. We forecast non-OPEC production outside the US to increase from 2018 by 1.2 million b/d by 2020, almost half what the US will deliver. The bulk is from new projects in Brazil, Canada, Australia and Norway.
Source : Wood Mackenzie