INTERACTIVE: US supply growth to dominate 2018 oil markets, outstrip Saudi Arabia - IEA

19 January 2018 17:15 Source:ICIS News

LONDON (ICIS)--North America continues to strengthen as a player in the global crude oil markets, with US supply beating all expectations in 2017 and set to outstrip Saudi Arabia this year, the International Energy Agency (IEA) said on Friday.

Source: imageBROKER/REX/ShutterstockThe country is set for “explosive” growth, with cost discipline learned by the US unconventional oil and gas industry following the price crash of late 2014 paying dividends now, the IEA said.

The agency is projecting that the US will represent the bulk of total non-OPEC crude supply growth in 2018, around 1.35m bbl/day of a projected 1.7m bbl/day, and likely to balance out expected steep declines elsewhere in the Americas for Mexico and Venezuela.

“This year promises to be a record-setting one for the US,” the IEA said in its monthly Oil Market Report.

“Relentless growth should see the US hit historic highs above 10m bbl/day, overtaking Saudi Arabia and rivalling Russia during the course of 2018 – provided OPEC/non-OPEC restraints remain in place,” it added.

The IEA statement comes a day after oil cartel OPEC released projections revising up non-OPEC crude supply in 2018 by 160,000 bbl/day to 1.15m bbl/day, an increase of 13% on earlier estimates, primarily on the back of higher expectations of US and Canadian output.

OPEC estimated its crude supply at an average of 32.9m bbl/day in 2017, which it projects will increase slightly in 2018 to 33.1m bbl/day.

Oil prices have rallied in recent months, with March Brent futures trading at just below $70/bbl on 18 January, and February WTI selling for $64.09/bbl.

The higher prices, driven in part by OPEC’s accord for member states to cut back production, has spurred an increase in North American supply, which has increased as US unconventional oil costs continue to fall.

“Higher oil prices are bringing more supply to the market, particularly in North America and specifically tight oil, including unconventional NGLs [natural gas liquids],” OPEC said in its monthly oil report on 18 January.

“Shale producers in the US have managed to lower their break-even costs by 30-50% in 2015-17, by improving technology and efficiency and as oil field service providers offered deep discounts on rigs and crews to retain their share of a shrinking market,” it added.

IEA estimated OPEC supply cut compliance at 95%, although supply discipline from the non-OPEC signatories to the deal – including Russia, Kazakhstan and Malaysia – was less strong, at around 82%.

OPEC supply cuts were driven in part by a production collapse in crisis-hit Venezuela, which communicated a year-on-year production fall of around 13% in 2017, representing the world’s largest unplanned drop in production for the year.

Drops in Venezuelan output in December pushed OPEC compliance rates for the month to 129%, as delayed payments, US sanctions and low investment hammered the country’s key export industry, stoking fears of a default.

Demand growth for 2018 is estimated at 1.3m bbl/day, said IEA, below its projections of 1.6m bbl/day for 2017, with higher prices, shifting China oil use patterns, weaker OECD nations demand and a switch to natural gas in some non-OECD countries all contributing to slower demand expectations.

Pictured: The Valero Three Rivers oil refinery in Texas, located near the Eagle Ford shale play
Source: imageBROKER/REX/Shutterstock

By Tom Brown