Baku, Azerbaijan, July 5
By Leman Zeynalova – Trend:
Flat oil prices can lead to keeping output cuts indefinitely, Trend reports citing Fitch Solutions Macro Research (a unit of Fitch Group).
“The main beneficiaries of OPEC+ production cuts have been US producers. Cumulative growth in US production has closely matched the levels of OPEC production output that has been removed from the market since the start of 2017. The OPEC losses in output stem from both production cuts and the implementation of sanctions on Iran and Venezuela, as well as a natural decline from fields. On the balance of losses and gains, net output had the US adding 250,000 b/d of supply since 2017. Any reduction in production cuts or removal of sanctions on Iran or Venezuela could flood the market lowering oil prices further. If prices remain broadly flat, the case for keeping production cuts indefinitely and ceding market share becomes the most likely outcome. This will put OPEC+ in a difficult position in the long term,” said the company.
The latest production numbers from the EIA indicate that US output has come off the boil, but Fitch Solutions still expects growth in output to be substantial for the next several years.
“Monthly y-o-y growth rates rebounded in April to above 16 percent, which has reversed a two-month slide. Lower oil prices have further reduced capex projections for new drilling as US independent oil companies focus on cost-cutting and efficiency gains to boost profitability,” said the company.
This renewed focus on profits will slow growth, but the company believes any uptick in prices will be met by increased drilling and output from shale plays in the US.
“Our forecast for a widened gap between expected demand and new supply will mean new supply will lower prices, and this dynamic will serve as a cap to oil prices. Additional increases in US output will result from higher prices, but gains in price will erode as more production is brought online to take advantage but will ultimately moderate price upside as a result,” reads the report.
The 176th Meeting of the Conference of the Organization of the Petroleum Exporting Countries (OPEC) was held in Vienna, Austria, on 1 July 2019. In view of the current fundamentals and the consensus view on the outlook for the remainder of 2019, the Conference decided to extend the voluntary production adjustments agreed at the 175th Meeting of the OPEC Conference for an additional period of nine months from 01 July 2019 to 31 March 2020.
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