What's Driving Oil Prices Back Up?
Judging by the market reaction so far this week, oil markets are no longer fearful of the impact of rising US shale oil production.
Prices remained solid at well above $US60 a barrel in the wake of the latest update from the International Energy Agency (IEA) on Monday which forecast a surge in US oil output between now and 2023.
The Agency forecast (https://www.iea.org/newsroom/news/2018/march/record-oil-output-from-us-brazil-canada-and-norway-to-keep-global-markets-well-.html) that US producers would steal market share from OPEC in a market where demand will grow at 1% a year or more, while pushing America closer to self sufficiency.
Global oil demand will increase by 6.9 million barrels per day (bpd) by 2023 to 104.7 million, according to the IEA.
The IEA said the US would be producing a total of nearly 17 million barrels per day (bpd) in 2023, up from 13.2 million last year, eating into OPEC’s market share and moving closer to self-sufficiency.
Natural gas liquids will add another 1 million bpd to reach 4.7 million bpd by 2023. With total US oil liquids production set to reach nearly 17 million bpd in 2023, up from 13.2 million in 2017, America will be by far the world’s top oil liquids producer.
While the global market will grow around 1.1% a year up to 2023, OPEC will lose share because it is failing to invest in new facilities (such as Nigeria, Libya, Iraq, Venezuela).
OPEC producers will grow output at a much slower pace, the IEA said, with falls in Venezuelan production offsetting gains in Iraq. As a result, OPEC’s crude oil capacity will grow by just 750,000 bpd by 2023.
With forecast capacity of 36.31 million bpd, OPEC will be supplying less than 35% of global demand by 2023 compared to its usual share of around 40%.
The IEA said oil production growth from the US, Brazil, Canada and Norway will more than meet global oil demand growth through 2020, the IEA said, adding that more investment would be needed to boost output after that.
Non-OPEC production is set to rise by 5.2 million bpd by 2023 to 63.3 million bpd with the United States alone accounting for nearly 60% of global supply growth.
US oil output has resumed sharp growth over the past year and is expected to rise by 2.7 million barrels per day (bpd) to 12.1 million bpd by 2023, as growth from shale fields more than offsets declines in conventional supply.
“The United States is set to put its stamp on global oil markets for the next five years,” said Dr. Fatih Birol, the IEA’s Executive Director. “But as we’ve highlighted repeatedly, the weak global investment picture remains a source of concern.
"More investments will be needed to make up for declining oil fields – the world needs to replace 3 mb/d of declines each year, the equivalent of the North Sea – while also meeting robust demand growth.”
Growth will be led by the Permian Basin in Texas and New Mexico, where output is expected to double by 2023.
US oil production in 2017 rose by 670,000 bpd in 2017 as drillers added 200 rigs“beating all expectations”, the IEA said. Last year, the IEA forecast US shale production to grow by 1.4 million bpd by 2022 with oil prices of up to $US60 a barrel and by up to 3 million barrels with oil at $US80 a barrel. Now the rise is more than double that by 2013.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.