OPEC said Tuesday that shale oil production will grow considerably faster than expected over the next four years, after the group's output cuts triggered a crude-price recovery that helped U.S. producers.
North American shale output will soar to 7.5 million barrels a day in 2021, the Organization of Petroleum Exporting Countries said in its World Oil Outlook report on Tuesday. That's 56 percent higher than it forecast a year ago. The revised outlook illustrates OPEC's dilemma: With supply curbs also helping its rivals, demand for the group's crude will remain little changed until shale oil output peaks after 2025.
U.S. shale oil "most strikingly" exceeds previous expectations after showing the "resilience and ability to bounce back," OPEC said. "This growth is heavily front-loaded, as drillers seek out and aggressively produce barrels from sweet spots in the Permian and other basins."
OPEC assumes shale oil production growth will mostly originate from the U.S., with some contribution from Canada, Argentina and Russia over the forecast period to 2022. North American shale production for 2017 is now seen at 5.1 million barrels a day, up by almost a quarter from last year's World Oil Outlook report.
OPEC and its partners, including Russia, are meeting in Vienna on Nov. 30 to decide whether to extend the deal to curb production beyond the end of March. Since Jan. 1, they've targeted output cuts of about 1.8 million barrels a day in a bid to reduce global stockpiles.
The cartel said it sees no opposition to prolonging its production cuts beyond March and discussions are now focusing on the duration of the extension, said the group's top official.
"We've not had any party that is objecting to extending the supply arrangement," OPEC Secretary-General Mohammad Barkindo told reporters in Vienna on Tuesday. "It is the duration, and the terms and conditions that are being discussed."
The price of Brent crude has rebounded more than 10 percent this year, trading at more than $62 a barrel in London. Brent for January settlement slipped 58 cents to end Tuesday's session at $63.69 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for December delivery fell 15 cents to settle at $57.20 a barrel on the New York Mercantile Exchange.
OPEC expects shale oil production to peak after 2025 and decline from about 2030. OPEC will then be required to increase its own output from about 33 million barrels a day in 2025 to 41.4 million in 2040, according to the report.
The report by the 14-nation cartel says that it will still account for 74 percent of all energy used globally in 2040.
OPEC raised its forecast for global oil demand by 2.3 million barrels a day in 2021 compared with last year's report. The group said demand growth will be particularly robust in 2020 as regulations to reduce shipping pollution kick in, leading to higher refinery runs to provide the required fuels.
A larger-than-expected boom in electric vehicle sales could cause global oil demand to peak and flatten out in the late 2030s, OPEC said.
If a quarter of the world's cars have batteries, global oil demand would reach a plateau of about 109 million barrels a day during the second half of the 2030s.
While OPEC's main forecast is still for oil consumption to increase, the inclusion of a faster-growth scenario for electric vehicles shows they are starting to take the threat more seriously.
"It is highly unlikely that electric vehicles will penetrate the passenger car segment with this strength in less than 24 years," according to the report. "Nevertheless, several countries have publicly stated their intention to achieve an even higher share of electric vehicles in new sales."
After France, the U.K. and potentially China announced plans to ban the sale of fossil-fuel burning cars in the coming decades, oil producers are paying increasing attention to the impact on long-term growth in oil demand. So far, there is little agreement over the scale of the threat. The International Energy Agency sees about 8 percent of the global light vehicle fleet running on batteries by 2040 with little impact on oil use, while Bloomberg New Energy Finance forecasts that a third of cars on the road will be electric.
OPEC's report also raised the possibility that mass adoption of car-sharing services such as those offered by Uber Technologies Inc. could eat away at oil demand as private car ownership falls.
In China, rapid growth of sharing services could shrink the car fleet and cause oil demand from cars to peak in 2035 and then fall marginally over the next five years. That would mean oil use from the car fleet would be 11 percent lower than OPEC's base case, which sees more modest growth in sharing and no peak in Chinese demand.
In developed countries on the American continent, wide adoption of car sharing and ride-hailing technology would accelerate the decline in oil demand, resulting in a 7 percent drop to 6.3 million barrels a day by 2040, according to the report.
Information for this article was contributed by Angelina Rascouet and Jessica Shankleman of Bloomberg News and by The Associated Press.
Business on 11/08/2017