Global oil supply 'will match demand until 2020'

Clay Curtis
March 9, 2018

US crude production hit an all-time monthly high in November and is expected to post a yearly record in 2018, the US Energy Information Administration reported last month.

The IEA forecasts that overall U.S. production gains will represent 60% of new global output to 2023. The IEA forecast firmly puts U.S. in the driver's seat in driving global oil production.

U.S. supplies will dominate oil markets for years to come, satisfying 80% of global demand growth to 2020, the International Energy Agency said.

While the USA will play the largest role, the energy agency predicts that Canada, Brazil and Norway will pump enough oil to meet the rest of the growth in world demand through the next five years.

"The Permian is just now coming into its own", said Randy Foutch, chief executive officer of shale producer Laredo Petroleum Inc, which plans to boost output 10 percent this year. By 2023 the level of spare production capacity that could be used in the event of a disruption will be the lowest since 2007.

As an exporter, the USA will continue to lift its profile in world markets, the IEA forecasts.

Besides, with non-OPEC supply rising quickly, particularly in the U.S., OPEC may struggle to figure out a way to increase output without pushing down prices. At the same time, growth in gasoline and diesel usage will be held back by fuel efficiency improvements and declining consumption in the developed world, the IEA said. This year, the United States could surpass Russian Federation as the world's largest oil producer.

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The agency said the pipeline constraints have increased the forward discount for Canadian production, adding US$3.75 a barrel in 2018 and US$2 a barrel in 2019 to the forward differential curve between Western Canadian Select and WTI since its last report a year ago. We keep hearing that shale oil will be the savior and bring OPEC to its knees, but the actual supply data is telling a much different story.

"Global economic growth is lifting more people into the middle class in developing countries and higher incomes mean sharply rising demand for consumer goods and services", the IEA said.

The producers' decision to curb investments in the short-term amid uncertain oil price environment could lead to a supply risk into the future, warned the IEA.

"The world needs to replace 3 million b/d of declines each year, the equivalent of the North Sea, while also meeting robust demand growth".

He added that USA producers are also able to tap capital markets more expertly, which is vital at a time when analysts insist that much more investment is required to meet future demand: "A major concern is our industry's inability to attract capital; this is extremely risky". But if producers fail to make those investments and oil prices ratchet up to extremely lofty levels, can that propel a faster acceleration to low carbon electric cars, shared mobility services, and oil saving devices, hurting those very same oil producers even more harshly in the long run?

One day after Gary Cohn said he would resign his position in the White House, European markets were falling Wednesday.

The news comes at a tense time for global trade. This is an average annual growth rate of about 1.2 million barrels per day, which does not indicate any particular change compared to last year's forecasts.

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