Easwaran Kanason

Co - founder of NrgEdge
Last Updated: December 1, 2017
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Business Trends

As predicted, the OPEC meeting in Vienna yielded an extension of the current supply freeze deal from March 31, 2018 to December 31, 2018. This had been telegraphed well in advance of the meeting; in response to the official announcement, Brent prices slipped slightly – a sign that traders were disappointed that a more aggressive deal did not emerge.

There is signs for cheer, though. OPEC managed to get Libya and Nigeria – exempt from the last round of cuts – to agree to cap their 2018 output at a collective 2.8 mmb/d, which acknowledging the fact that both countries were still facing insurgent forces within their borders. All other OPEC production level limits will remain in place; compliance to the deal has been unusually high by OPEC standards, and despite geopolitical squabbles, OPEC’s oil ministers are at least united. Compliance among the NOPEC bloc, however, has been spottier. With countries like South Sudan announcing plans to increase output well above the rates agreed to in June, it is unlikely that NOPEC will meet its (voluntary) production commitments.

But even with that, there is evidence that the global supply glut is reducing. With world economic growth estimates trending more positive for 2018, OPEC itself thinks the market will reach balance by mid-2018. Which is why major OPEC nations including Iraq and Iran insisted on language that allowed OPEC to revisit or even retire the deal in June 2018, should the market tighten. With disruption risks ongoing in Libya and Nigeria, Venezuela on the verge of default and the Middle East embroiled in a political standoff, overheating could come even sooner. At the meeting, Russia insisted that OPEC develop a clear exit strategy from the deal, evidence that OPEC is not considering an extension into 2019. Even US shale producers are seeing the signs, issuing warnings that aggressive expansion could reverse all the good the OPEC deal has done and create another price crash. The extension of the deal is necessary, for now, but it clear that the oil world needs to start preparing for a post-deal environment.

The current breakdown of the OPEC and Non-OPEC oil production deal

OPEC production level limit

  • Saudi Arabia – 10.058 mmb/d
  • Iraq – 4.351 mmb/d
  • Iran – 3.797 mmb/d
  • UAE – 2.874 mmb/d
  • Kuwait – 2.707 mmb/d
  • Venezuela – 1.972 mmb/d
  • Angola – 1.673 mmb/d
  • Algeria – 1.039 mmb/d
  • Qatar – 0.618 mmb/d
  • Ecuador – 0.522 mmb/d
  • Gabon – 0.193 mmb/d
  • *NEW Libya – 1.000 mmb/d
  • *NEW Nigeria – 1.800 mmb/d
  • TOTAL: 32.601 mmb/d vs (34.1 mmb/d average in 2016)
  • Total cuts of 1.499 mmb/d

Estimated Non-OPEC production level limit

  • Russia – 11.000 mmb/d (minus 300,000 b/d)
  • Mexico – 1.944 mmb/d (minus 100,000 b/d)
  • Kazakhstan – 1.650 mmb/d (minus 50,000 b/d)
  • Oman – 0.950 mmb/d (minus 45,000 b/d)
  • Azerbaijan 0.750 mmb/d (minus 35,000 b/d)
  • Malaysia – 0.665 mmb/d (minus 35,000 b/d)
  • Equatorial Guinea – 0.185 mmb/d (minus 12,000 b/d)
  • South Sudan – 0.130 mmb/d (minus 8,000 b/d)
  • Sudan – 0.120 mmb/d (minus 4,000 b/d)
  • Brunei – 0.110 mmb/d (minus 7,000 b/d)
  • Bolivia – 0.060 mmb/d (minus 4,000 b/d)
  • Bahrain – 0.040 mmb/d (minus 12,000 b/d)
  • TOTAL: 17.604 mmb/d vs (18.216 mmb/d average in 2016)
  • Total cuts of 0.612 mmb/d

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EIA expects U.S. crude oil production to remain relatively flat through 2021

In the U.S. Energy Information Administration’s (EIA) November Short-Term Energy Outlook (STEO), EIA forecasts that U.S. crude oil production will remain near its current level through the end of 2021.

A record 12.9 million barrels per day (b/d) of crude oil was produced in the United States in November 2019 and was at 12.7 million b/d in March 2020, when the President declared a national emergency concerning the COVID-19 outbreak. Crude oil production then fell to 10.0 million b/d in May 2020, the lowest level since January 2018.

By August, the latest monthly data available in EIA’s series, production of crude oil had risen to 10.6 million b/d in the United States, and the U.S. benchmark price of West Texas Intermediate (WTI) crude oil had increased from a monthly average of $17 per barrel (b) in April to $42/b in August. EIA forecasts that the WTI price will average $43/b in the first half of 2021, up from our forecast of $40/b during the second half of 2020.

The U.S. crude oil production forecast reflects EIA’s expectations that annual global petroleum demand will not recover to pre-pandemic levels (101.5 million b/d in 2019) through at least 2021. EIA forecasts that global consumption of petroleum will average 92.9 million b/d in 2020 and 98.8 million b/d in 2021.

The gradual recovery in global demand for petroleum contributes to EIA’s forecast of higher crude oil prices in 2021. EIA expects that the Brent crude oil price will increase from its 2020 average of $41/b to $47/b in 2021.

EIA’s crude oil price forecast depends on many factors, especially changes in global production of crude oil. As of early November, members of the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) were considering plans to keep production at current levels, which could result in higher crude oil prices. OPEC+ had previously planned to ease production cuts in January 2021.

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EIA recently published a more detailed discussion of U.S. crude oil production in This Week in Petroleum.

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OPEC members' net oil export revenue in 2020 expected to drop to lowest level since 2002

The U.S. Energy Information Administration (EIA) forecasts that members of the Organization of the Petroleum Exporting Countries (OPEC) will earn about $323 billion in net oil export revenues in 2020. If realized, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues.

Crude oil prices have fallen as a result of lower global demand for petroleum products because of responses to COVID-19. Export volumes have also decreased under OPEC agreements limiting crude oil output that were made in response to low crude oil prices and record-high production disruptions in Libya, Iran, and to a lesser extent, Venezuela.

OPEC earned an estimated $595 billion in net oil export revenues in 2019, less than half of the estimated record high of $1.2 trillion, which was earned in 2012. Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programs, and support public services. EIA expects a decline in net oil export revenue for OPEC in 2020 because of continued voluntary curtailments and low crude oil prices.

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EIA recently published a more detailed discussion of OPEC revenue in This Week in Petroleum.

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In its Monthly Energy Review, EIA converts sources of energy to common units of heat, called British thermal units (Btu), to compare different types of energy that are more commonly measured in units that are not directly comparable, such as gallons of biofuels compared with kilowatthours of wind energy. EIA uses a fossil fuel equivalence to calculate primary energy consumption of noncombustible renewables such as wind, hydro, solar, and geothermal.

U.S. renewable energy consumption by sector

Source: U.S. Energy Information Administration, Monthly Energy Review

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Wood and waste energy, including wood, wood pellets, and biomass waste from landfills, accounted for about 24% of U.S. renewable energy use in 2019. Industrial, commercial, and electric power facilities use wood and waste as fuel to generate electricity, to produce heat, and to manufacture goods. About 2% of U.S. households used wood as their primary source of heat in 2019.

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