OB04_052020

Organizationof thePetroleumExportingCountries 13 May 2020 Feature article: Non-OPEC oil supply development Oil market highlights Feature article Crude oil price movements Commodity markets World economy World oil demand World oil supply Product markets and refinery operations Tanker market Crude and refined products trade Commercial stock movements Balance of supply and demand i iii 1 7 10 24 32 47 53 56 61 66 107 OPEC bulletin 4–5/20 Non-OPEC oil supply development Non-OPEC oil supply continued to increase by 2.0m b/d in 2019, driven by US shale production, which rose by 1.7m b/d, amounting to 84 per cent of total non-OPEC supply growth. This growth came despite pipeline con- straints in the Permian basin in 1H19, and as independ- ent oil companies began to reduce spending in response to investor demands to raise free cash flow. With regard to infrastructure, Canada also suffered from limited pipeline and storage capacity, which led to a mandate to curtail oil sands production by the Alberta provin- cial government. Liquids production in Brazil, Australia, Russia and China also contributed to the gains, while part of this growth was offset by heavy declines in Mexico and Norway. Capital expenditure, including exploration capex in non-OPEC countries, reached a record high of $741bn in 2014 when oil price levels were also high. However, in the years that followed and with lower average oil pric- es, investment dropped to considerably lower levels in 2016. Moreover, since the beginning of the renewed de- cline in oil prices in 4Q18, the amount of capex has also decreased to $459 bn in 2019. Capex in 2020 is forecast to show a y-o-y decline of 23 per cent, according to preliminary estimations, which is only approximately half of level of capex in 2014. The COVID-19 pandemic, which began in 1Q20 has spread globally in a matter of a couple of months, has caused a recession in the global economy, as well as an unprec- edented oil demand shock, leading to large oversupply in the oil market. In response to this sudden and huge market imbal- ance, OPEC and the ten non-OPEC participants in the ‘Declaration of Cooperation’ (DoC), decided to adjust down their combined current production by 9.7m b/d in May and June 2020, to be followed by a combined reduction of 7.7m b/d in 2H20 and by 5.8m b/d for a period of 16 months, from January 1, 2021, to April 30, 2022. Furthermore, on May 12, 2020, Saudi Arabia, the UAE and Kuwait announced that they would voluntarily deepen oil output adjust- ments from June, by 1m b/d, 100,000 b/d and 80,000b/d, respective- ly, in an effort to expe- dite draining a global supply glut and rebal- ancing the oil market. Outside of the DoC, other non- OPEC producers, particularlyUS producers, reduced their productionby shutting-inproducingwells or adjust- ing down the rate of production. According to different sources and company announcements, US producers — including oil majors — have so far cut production by at least 1.5m b/d in 2Q20, which is likely to be achieved by shut-ins of higher-cost wells, partial reductions in output of selected wells and the deferral of “putting on produc- tion” wells. Additionally, 2020oil production in Canada, particu- larly Alberta’s bitumen and synthetic crude, is forecast to decline by 400,000 b/d on an annual basis, on reduced upstream capex of the main operators and shut-ins/ curtailment announcements of around 1.0m b/d. Globally, outsideof theDoC, as ofMay6, 2020, around 3.6m b/d of production cuts have so far been announced in response to the lack of demand, low oil prices, excess supply and limited storage capacity. With this, non-OPEC supply in 2020 is expected to see a deep contraction of 3.5m b/d mainly in the US, Russia and Canada, as only few countries will to show some sup- ply growth in 2020 such as Norway, Brazil, Guyana and Australia. The speedy supply adjustments in addressing the current acute imbalance in the global oil market has already started showing positive response, with re- balancing expected to pick up faster in the coming quarters. May 2020