IEA chief economist says American shale production could drop 3 million b/d if prices remain at $40/b
Global oil supplies rose 250,000 b/d in April, according to the International Energy Agency, whose chief economist is forecasting tough times for American shale production through to 2020.
Production rose to 96.2 million b/d as higher OPEC output more than offset deepening declines in non-OPEC countries, according to the newly released IEA Oil Market Report (OMR) for May.
But year-on-year, world output grew by just 50,000 b/d in April versus the rise of more than 3.5 million b/d a year earlier. Non-OPEC supply is forecast to drop by 0.8 million b/d in 2016 to 56.8 million b/d.
Much of that drop is expected from American producers. IEA chief economist Laszlo Varro, presenting at the Platts Global Crude Oil Summit, expects American shale oil production to decline by 3 million b/d in the 2015-2020 period if prices average $40/b and still decline slightly at $60/b.
“The US oil industry is fighting very hard and I’m really impressed by how hard they fight, but they cannot overcome the laws of gravity. So investment is declining in the US quite significantly,” Varro said, according to Platts.
“There’s roughly a 4.5 million b/d flexibility in US light tight oil production depending on oil prices, which can come to the market very, very rapidly.”
But Wednesday the US Energy Information Agency forecast oil prices climbing to $76/b in 2017, highlighting the complexity and uncertainty surrounding global energy markets.
OPEC crude output rose by 330,000 b/d in April to 32.76 million b/d as a 300,000 b/d jump in Iranian flows and a boost in supply from Iraq and the United Arab Emirates more than offset outages in Kuwait and Nigeria. Saudi output was steady near 10.2 million b/d. Iranian supply rose to 3.56 million b/d, a level last hit in November 2011, before sanctions were tightened.
The OMR for May revised global oil demand growth for the first quarter of 2016 upwards to 1.4 million b/d, led by strong gains in India, China and, more surprisingly, Russia. For the year as a whole, growth will be around 1.2 million b/d, with demand reaching 95.9 mb/d.
Stock builds are beginning to slow in the OECD: in the first quarter they grew at their slowest rate since the last quarter of 2014 and February saw the first draw in a year. In March, OECD commercial inventories fell by a slim 1.1 million barrels, with preliminary data for April suggesting that stocks rebounded while oil held in floating storage rose.
Global refinery throughput for the current quarter is forecast at 79.6 million b/d, with the 0.7 million b/d year-on-year gain falling below anticipated demand growth of 1.2 million b/d. The estimate for the previous quarter has been revised higher by 0.2 million b/d to 79.5 million b/d. India and Saudi Arabia are set to lead global annual increases this year.