Oil price collapse hangs on extension of OPEC curbs
Norway based energy consultancy, Rystad Energy says a fresh collapse of oil prices is inevitable next year unless OPEC increases and extends its oil production cuts of over 1.8million barrels per day.
Rystad has a bullish forecasts for the growth in US oil output, even at current oil prices or lower, meaning that global oil stockpiles would start to grow again by the June quarter next year unless curbs are implemented in OPEC.
“Shale is not dead, shale is reborn and has strong growth potential even at $40 to $50 oil,” Jarand Rystad chief executive of Rystad said at the opening of the firm’s Sydney office. “It has the potential to again crush the oil market.”
Rystad, one of the few to correctly forecast that US oil output would reach 10 million barrels a day by the end of 2018, is predicting that output could grow to 11.4 million bbl/d by the end of this year and potentially to 12.7 million bbl/day by the end of 2019, thanks to lower costs and higher well productivity according to a report by the Financial Review.
Rystad’s numbers are higher than the market consensus and Energy Information Administration forecasts, but OPEC in its March oil market report again increased its forecast for non-OPEC output in 2018, reflecting surging US output. The cartel now expects the increase in non-OPEC supply to outweigh the growth in demand this year.
But OPEC has a difficult task on its hands to convince producers to pump less. At its 7th meeting convened in Muscat, the Sultanate of Oman, on 21 January 2018, the oil cartel announced that, based on the Report of the Joint Technical Committee (JTC) for the month of December 2017, OPEC and participating non-OPEC countries have achieved a record-breaking conformity level of 129 percent with their voluntary production cut of 1.8million barrels to global supply.
“Conformity levels have increased on a monthly basis, from 87 percent in January to the outstanding current level. Once more, the unwavering resolve of participating countries to rebalance the market has been amply demonstrated. The JMMC expressed satisfaction with the overall results and urged all participating countries to continue and, to the extent possible, intensify their collective and individual efforts, in the interests of bringing stability to the oil market. The JMMC will strive to maintain or exceed full conformity by all participating countries, throughout 2018,” said OPEC.
But this may change quickly if volumes continue to rise in Nigeria and Libya. Independent producers in Nigeria want to raise output to 250,000 bpd more by 2020. This is in response to the plan by the ministry of petroleum resources to raise Nigeria’s crude oil production by 2.5million bpd.
“OPEC needs to increase and extend their cuts to not see a market collapse next year, if we do not get any other surprising disruptions – that could of course always happen,” Rystad said.
But he said his base case assumption is that OPEC does act to head off a fresh crash, extending cuts into 2019 and so leading to only a modest decline.
He said looking out to 2025 it is as likely that oil would be at $30 as $130, given the host of decisions that could be taken before then on new investments and production level that would influence the market.
Russia says it is committed to seeing its pact with OPEC through to completion, whether that means starting discussions about a phase-out at the next meeting in June or prolonging output cuts into 2019, Alexander Novak, Energy Minister said.
“As soon as the ultimate goal of our deal is achieved, which is the balancing of the market, we will start considering gradual withdrawal,” Novak said. “That might start to happen starting with the third or fourth quarters,” and discussion of an exit strategy at the group’s next meeting in June cannot be ruled out, he said.
However, Venezuela is likely to remain the biggest risk factor among leading oil producers for some time to come, according to the latest monthly report from the International Energy Agency (IEA).
“Without any compensatory change from other producers it is possible that the Latin American country could be the final element that tips the market decisively into deficit,” the Paris-based organization added.
ISAAC ANYAOGU