Global oil oversupply rising through 2020 – study

Author: Stefan Baumgarten

2015/10/29

HOUSTON (ICIS)--Oversupply in oil markets will likely continue to increase through 2020 as OPEC countries step up production in a power struggle for market share against North American shale oil, the German arm of US-based management consultants Bain said in a study on Thursday.

As a consequence, higher-cost oil production – in particular from Canada’s oil sands – will continue to be under pressure, the consultants said.

OPEC production should rise to 35m bbl/day by 2020, up by about 13% from current levels, putting pressure on oil prices and hurting not only Canada’s oil sands, but also producers in Venezuela, as well as deep-sea oil exploration and production, the consultants said.

Meanwhile, shale oil should have "good market prospects", because it is available at short notice as shale oil wells can be built and brought into production relatively quickly, Bain said.

Armin Schmiedeberg, a Bain partner who specialises in raw materials and oil, said that OPEC is already producing above the 30m bbl/day ceiling it agreed in June.

The winners from this power struggle against shale oil are consumers and drivers, he added.

However, he warned that it remains difficult to make long-term forecasts, given the many factors – demand, supply, inventories, geopolitics, environmental pressure and others – that influence oil markets.

In related news, Shell this week announced that it will not continue construction at an oil sands project in Canada’s Alberta province, and a Canadian research group warned that the country’s oil sector will likely record a sharp loss this year because of the low oil price environment. Also hampering Canada’s oil industry is a lack of pipeline capacity to ship the oil to market.