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The dark view of non-OPEC oil



The period from 2010 to 2014 experienced the highest renewable oil price environment in recent memory, with Brent averaging $ 110 a barrel and WTI $ 95 a barrel. This high oil price lead to a period of unprecedented capital investment in oil and gas extraction, as global capital investment increased from $ 500B in 2010 to $ 700B by 2014 (noting some of the increase due to cost growth, and thus the size of the capital increase and its subsequent death , is to some extent manipulated by changes in the unit cost.]

(Click to enlarge)

(Source: Bank of America Merrill Lynch)

3 to 5 year time delay between increased capex and production response, the effect of The R&D capital investment in 201

0-2014 was ready to influence global oil production later in the decade:

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(Source: Goldman Sachs)

The delayed response between Investments in supply and the resulting new supply have historically been the main reason for the low correlation between spot prices and global oil supplies. that once an oil company has invested billions of dollars in developing a given oil product, production will come about upon completion of such a project regardless of cost.

Where did all the oil go? [19659003] On the basis of the above overview, it would be expected that OPEC's global oil production had not increased over the past three years, and despite the collapse in oil prices. Looking at the latest EIA STEO, at first glance it will be concluded that in fact non-OPEC oil production has increased in recent years from 60.2M barrels in January 2015 to 65M in May 2019, an increase of 4.8 million barrels in 3.5 years. However, a closer look at the data shows another picture. Related: Oil surface despite tension in the Middle East

Non-OPEC supply basked is a heterogeneous basket of each oil-producing country outside OPEC, most of which produce the oil supply from conventional resources, namely rural and offshore conventional fields . The only two non-OPEC countries that produce the majority of the oil supply from non-conventional resources are: Canada (Oil Sands and Tight Oil) and the United States (Tight Oil). Unlike conventional oil production and oil sands production, dense oil production is a short cycle resource, there is another way, the time passes between investing in new dense oil supplies and the resulting oil is about six months, a much shorter time frame compared to other competing sources of supply. In this context, one must get an accurate picture of the state of global non-OPEC oil supply, one has to exclude US oil production (most of which is from tight oil) from the data.

Non-OPEC supply (with and without US production):

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As stated above, non-OPEC supply (except US) held at an almost perfectly flat 45.4M barrel from January 2015 to May 2019. The reason for this is that production increases in countries such as Canada, Brazil and Russia have been offset by declines in countries such as Mexico, China and Colombia. Basically, the entire growth in non-OPEC supply since January 2015 (4.8 M barrels) has been generated by the United States alone. This is repeated: 100% of non-OPEC supply growth over the past 3.5 years has come from a single country: the United States.

Why should investors bother?

The aforementioned conditions are very worrying for a number of reasons. Firstly, the US oil industry has been a money losing proposition for years, with the top 40 oil and oil production spending $ 200B more than they brought in over the last few decades, according to the Wall Street Journal. These renewable losses have provided investors with the industry and greatly reduced access to external financing. Furthermore, problems with well spacing, decline in productivity improvement, and reduced inventory of high-quality sites, are temperate industry's future growth expectations. This is not to say that US shale oil production is about to collapse, but expected growth over the next 3 years is unlikely to match the robust growth rate we have seen over the past 3 years. The second reason investors should notice that the flat in non-OPEC supply (ex-US) is despite record investments. Related: Polar Silk Road can be a natural gas gambler in the previous bull, the investment cycle is the evolution of non-OPEC supply cases:

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(Source: Wood Mackenzie)

According to a recent Wood Mackenzie study, the average non-OPEC oil production decline rate (except US dense oil) has remained at 5.1% since 2015. This is the result of major investment in the brakes and a number of interim production downturn measures implemented after the oil price collapse. Wood Mackenzie expects this stable rate of decline to exceed 6% by 2021. An increase in the non-OPEC rate of decline from 5.1% to 6.3% may seem trivial, but when used against a 45.4M production base, it becomes 550K in additional annual decreases. In particular, such an acceleration in non-OPEC (ex-US) rate of decline is seen against a backdrop of a significant decline in new non-OPEC mega-project supply subsidies:

(Click to enlarge) [19659003] (Source: Goldman Sachs)

Bottom line

What this analysis indicates is that the effect of the oil price at the end of 2014 is about to hit non-OPEC oil Delivery from two fronts: Through An increase in the global non-OPEC decline rate and through a significant weakening of new non-OPEC mega projects adds inputs. Combined impact of these two forces will exceed 1m barrels in lost production per year by 2021. Since non-OPEC oil supply is inevitably decent in 2021, the compensation burden of production falls and falls after the demand growth (which remains robust despite the advent of EV cars) will fall into two sources: US tight oil and OPEC.

Can the US Tight Oil and OPEC charge the burden?

The United States' tight oil growth is expected to decline significantly by 2021, as many of the factors highlighted earlier come into play. Self, Rystad Energy, one of the most optimistic research equipment in US tight oil, expects a weaker US tight oil growth in the early 2020s:

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Error Between It projected the flattening of US tight oil production growth and the expected decline in non-OPEC supply, giving OPEC the sole source of further supply.

Theoretically, the OPEC has the capacity to substantially increase supply in the coming years to compensate for the diminishing role of American slate. Saudi Arabia, UAE and Kuwait are reportedly able to increase production by 1.5M to 2M barrels in relatively short order. Nevertheless, the capacity of the cartel to increase supply is limited by a number of factors such as the political will to reduce oil prices and the increasing production product due to a number of unfavorable geopolitical developments: the imposed sanctions against Iran, the political turmoil in Venezuela, the raging civil war in Libya, and turmoil in Nigeria.

The oil market has been smashed by the phenomenal increase in US tight oil production, this historic and potentially devastating capacity expansion has largely masked the incredible fragility of non-OPEC oil supply. As Shale Oil Growth flattens in 2021, and non-OPEC (ex-US) supply exits its 45M barrel plateau, the oil bucket returns to OPEC, an organization that has repeatedly been written off as a relic of history, and still has proven again and again its overall role in dictating the direction of oil prices.

By Nawar Alsaadi for Oilprice.com

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