Global oil markets will remain well supplied this year, with a possible overhang of some 1 million bpd, the head of the International Energy Agency, Fatih Bitol, told Reuters.
“Non-OPEC production is very strong. We still expect production coming from, not just United States, but also Norway, Canada, Guyana, among other countries,” Birol said, adding “Therefore, I can tell you that the markets are, in my view, very well supplied with oil, and as a result of that, we see prices remain at $65 a barrel.”
Norway is about to experience a sharp jump in oil production in the next four years, a new forecast from its Petroleum Directorate has shown. After a steady decline over several years, production is set for a 43-percent increase between 2019 and 2024, the NPD said, reaching 2.02 million bpd in 2024. This will be thanks to the start of production at the Johan Sverdrup offshore field along with several smaller fields.
In Guyana, Exxon has just begun production from the Liza-1 well. Daily output from the deepwater field should reach 120,000 bpd before the end of 2020. Exxon is also building a second production vessel that should raise the total to 220,000 bpd.
In Canada, meanwhile, oil production is also set to grow despite a government-imposed curtailment aimed at supporting prices. The curtailment was relaxed twice in 2019 and it only concerns large producers, allowing smaller ones to pump as much as they can sell. Based on this, the Canadian Conference Board recently forecast oil production in the country will be growing at 4.2 percent annually between this year and 2024.
Demand growth, however, will be slow, according to Birol.
“We are expecting a demand growth of slightly higher than 1 million barrels per day,” the top IEA man told Reuters.
This means that except sudden spikes in prices due to geopolitical factors or possible production outages in a major producer, oil prices this year will remain largely range-bound.
By Irina Slav for Oilprice.com
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And while the global oil fundamentals are positive enough to cause a steep decline in the existing glut, it will be a hard job for them to reduce the glut by 3.0-4.0 mbd in 2020. It is possible that the market will still have an overhang of some 2.0-3.0 mbd by 2021.
And despite the IEA’s and the US Energy Information Administration’s (EIA’s) well known hype about US shale oil, US oil production is overstated by at least 2 mbd and, therefore, US oil production averaged 10.3 mbd in 2019 and not 12.3 mbd as the EIA claimed and is projected to decline to under 10 mbd or in 2020. This means that the US may need to import up to 11 mbd in 2020 let alone contributing to non-OPEC supply growth.
Norway’s production has been declining by 2.5% annually for the last 10 years. Its production in 2020 is projected to amount to 1.75 mbd, meaning that it will contribute 50,000 barrels a day (b/d) less to non-OPEC supplies than in 2019.
Canada’s exports will be more or less similar to last year’s. As for Guyana, its projected production of 120,000 b/d will not reach the market before early 2021. Therefore and contrary to what Fadil Birol said, non-OPEC supplies in 2020 could be 350,000 b/d less than in 2019 mbd.
If the de-escalation of the trade war continues this year, oil prices could average $73-$75 a barrel this year.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London