IEA sees U.S. adding most oil to global supply through 2020

GRANT SMITH

LONDON (Bloomberg) -- The U.S. will remain the biggest contributor to global growth in oil supplies to 2020 as OPEC’s attempts to defend its market share will hurt other suppliers including Russia more, according to the International Energy Agency.

U.S. production of oil from hard-to-penetrate rock formations, while slower than previously forecast, will expand to 5.2 MMbopd by the end of the decade from about 3.6 MMbopd last year, the Paris-based adviser to consuming nations said in a report Tuesday. Russia’s output will contract by 560,000 bopd in the period, a bigger drop than any other nation, as sanctions compound the impact of lower prices.

Oil suffered its second-biggest collapse, losing as much as 61%, as the Organization of Petroleum Exporting Countries chose to defend its market share against the highest U.S. oil production in three decades. The slump has spurred U.S. drillers to idle rigs and companies such as Royal Dutch Shell and Chevron to cut billions of dollars of spending plans. These cuts will start to slow non-OPEC production growth in the second half of the year, the IEA said.

“While OPEC’s policy shift appears in part aimed at undermining North America’s unconventional production, supply growth from the region is unlikely to be the main casualty of the resulting low prices,” the IEA said in its Medium Term Oil Market Report. “Russia, facing a perfect storm of collapsing prices, international sanctions and currency depreciation, will likely emerge as the industry’s top loser.”

Shale Curbs

Brent for March settlement slid 74 cents to $57.60/bbl on the London-based ICE Futures Europe exchange at 8:24 a.m. local time. West Texas Intermediate lost 76 cents to $52.10.

The agency cut its estimate for U.S. output growth this year by 200,000 bopd in a separate monthly report and growth will be almost wiped out in the second half of 2015. Excess supply will persist to the middle of the year, when oil inventories in industrialized nations may come close to the record high of 2.83 Bbbl reached in August 1998. The “dramatic” pile-up in crude stockpiles will halt from July, causing the global market to start “tightening appreciably,” it said.

The IEA cut its growth estimate for shale supplies to 2020 by 900,000 bopd. About 41% of crude and condensate production from shale plays last year was profitable at $50/bbl or less. The short delay between drilling and production in shale projects means that, when demand recovers, shale output may compete directly against OPEC to meet the additional need.

OPEC Recovery

Other non-OPEC producers will suffer more than the U.S., with Russian production set to fall to 10.4 MMbopd in 2020, lower than the level produced before 2010, because of lower prices, sanctions and a weakened currency.

The IEA’s monthly report reduced a forecast for non-OPEC supply growth this year by 150,000 bpd. The agency now estimates that supply outside OPEC will expand by 800,000 bpd this year, the slowest rate of growth since 2012.

Non-OPEC

The estimate for non-OPEC supply to the end of the decade is about 2.8 MMbopd lower than last year’s IEA report. Non-OPEC supply will increase by an average of 570,000 bopd each year during in the period, down from the 1.9 MMbopd achieved last year.

OPEC’s capacity will expand by 1.2 MMbopd to 36.2 MMbopd by 2020, with almost all of the increase concentrated in Iraq. The annual expansion is down from the 350,000 forecast in last year’s report, as the price slump curtails spending in other members. Iraq will boost capacity by 1.1 MMbopd by 2020.

Demand for OPEC’s crude will recover to reach 32.1 MMbopd by 2020, about 2 MMbopd more than the group’s current production levels.

The agency cut each annual estimate for global oil demand from 2016 through to 2019 by 1.1 MMbopd. Chinese oil demand growth will slow to less than 300,000 bpd annually through 2020.

Global demand will still expand by an average of 1.2% in the period to 2020, reaching 99.1 MMbopd that year, according to the IEA. Consumption over the period will outstrip increases in production capacity by about 1.5 MMbopd. Asia will replace the Americas as the world’s biggest oil consumer this year.