OPEC Must Extend Production Cuts to Balance Market
The medium-term future of the oil & gas industry rests with OPEC’s impending decision to potentially extend production restrictions beyond the end of March 2018. Westwood predicts a nine-month extension would lead to a supply-demand equilibrium in 2018, avoiding a return to a significant supply glut. With no such extension currently agreed, Westwood’s base case is an oversupplied market comparable with that of 2015.
2015-2019 supply-demand balance: base case vs extended OPEC cut
Source – Sectors
- OPEC has cut deeper than its initial agreement during the first nine months of 2017, despite low compliance from Iraq and non-OPEC participants.
- The glut of stored oil is still present and stockpiles will remain above their five-year average by the end of 2017.
- With OPEC production cuts ending in March, global oil production is predicted to rise 3.1 mmbbl/d in 2018, much of this coming from recovering US shale plays and OPEC members.
- Without additional OPEC intervention, Westwood’s base case is a significant oversupply of 1.3 mmbbl/d, potentially sustained over the rest of the decade by further gains from the US and additions in the Middle East.
- US onshore drilling activity to rise 39% in 2017 and grow at an 11% CAGR to 2023 (base case).
- Offshore drilling for 2017-2023 down 13% on 2010-2017 due to the decline of project sanctioning over the last two years.
Based on detailed models, the report examines each of the 68 covered countries in turn and includes a summary of hydrocarbon potential and sensitised production outlook, with associated development drilling requirements segmented into oil & gas for the onshore sector and shallow vs. deep water depths for the offshore sector. Country-by-country exploration and appraisal (E&A) drilling forecasts for both the onshore and offshore sectors are also detailed.