OPEC said it is concerned about a lack of upstream investment in the oil industry outside of the US despite forecasting that the increase in 2018 non-OPEC crude supply would outpace global demand growth.
– 2017 non-OPEC spending 42% below 2014
– OPEC says supply forecast has major uncertainties
– OECD stocks 9 million barrels above 5-year avg
In its closely watched monthly oil market report that largely kept its fundamental projections steady from April, OPEC said non-OPEC spending in 2017 to bring new projects online was down 42% from 2014.
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It would have been lower without the contributions of US tight oil companies, who raised investment by more than 42% year-on-year in 2017, OPEC said.
“Timely spending on project implementation is a key concern,” OPEC said, which in recent weeks has indicated it will continue with its output cut agreement — and maybe even extend it past its expiry at the end of 2018 — to encourage more upstream spending despite tightening fundamentals.
OPEC has said new projects will be needed to fill a potential supply gap in the coming years, with demand expected to be robust.
The report comes just over a month from OPEC’s next ministerial meeting, June 22, in Vienna. The output cut agreement, which went into force in January 2017 after more than two years of a bruising market share battle, commits OPEC and 10 non-OPEC producers, led by Russia, to slash 1.8 million b/d of supply to support prices and reduce the global overhang of oil in storage.
In its report, OPEC forecast that non-OPEC investment would increase by just 3.5% year on year in 2018, rising to 8.1% in 2019. A major portion of that will come from US shale investment, which is projected to increase by 20% year on year in 2018 and then ease to 16% in 2019.
US production will account for 89% of the projected 1.72 million b/d in non-OPEC output growth in 2018, OPEC said.
On the demand side, OPEC forecast year-on-year growth of 1.65 million b/d.
It added that 269 projects expected to be approved in 2018, with 30 currently in the final investment decision phase, not including tight oil projects, of which 54% would be onshore and 46% offshore.
Brazil shows the largest growth potential from new field start-ups, OPEC said.
But the producer group said its projections of non-OPEC supply growth contain significant downside uncertainties.
“The continued strong development of the world economy could lead to rising inflation, and, along with potential trade restrictions, would impact oil production costs,” OPEC said. “In addition, fast-growing US tight oil production is increasingly faced with costly logistical constraints in terms of outtake capacity from land-locked production sites.”
OPEC also said many US shale companies are more cost-conscious now, with shareholders demanding more return on their investments, and geopolitical developments could also affect supply.
The US is reimposing sanctions on Iran’s crude exports, with buyers having until November 4 to wind down their purchases. Venezuela, whose production is already in free fall, may also face further US sanctions that could hit its oil production.
Also in its report, OPEC estimated that OECD commercial oil inventories stood at 2.829 billion barrels as of the end of March, down 12.7 million barrels from February and just 9 million barrels above the five-year average that OPEC has said it is targeting with its output cuts.
But OECD stocks still remain 258 million barrels above January 2014, when inventories began building as US shale supplies surged and OPEC members were pumping at high volumes.
Global demand for OPEC crude will average 32.74 million b/d in 2018, OPEC estimated, down 260,000 b/d from 2017.
That compares with OPEC’s April production of 31.93 million b/d, which was up 10,000 b/d from March, as estimated by independent secondary sources that OPEC uses to monitor output.
Saudi Arabia, OPEC’s largest member, pumped 9.96 million b/d in the month, according to secondary sources, a 50,000 b/d rise from March. The kingdom self-reported to OPEC an April output of 9.87 million b/d.
Second largest producer Iraq pumped 4.43 million b/d in April, steady from March, according to secondary sources, while third largest producer Iran had output of 3.82 million b/d, up 10,000 b/d.
Iraq self-reported output of 4.36 million b/d, as it has for the past eight months. Iran self-reported production of 3.80 million b/d.
Venezuela had the steepest month-on-month fall, with its production tumbling 40,000 b/d to 1.44 million b/d, secondary sources estimated. The country self-reported to OPEC a production figure of 1.51 million b/d, unchanged on the month.
Source: PlattsPrevious Next