BAKU, Azerbaijan, June 2
By Leman Zeynalova – Trend:
OPEC+ deal is to continue in June, with production curtailments beginning to scale back in July, Trend reports with reference to the US JP Morgan Bank’s Global Commodities Release.
“Assuming our current price forecast for 3Q20 and 4Q20, we believe that the return of drilling activity in 2021— albeit more moderate than observed at the start of 2020— will likely result in a growing production profile throughout the year,” said the bank.
JP Morgan Bank estimates that production in December 2021 will average at 11.8 mbd, or 600 kbd higher than the December 2020 level.
“That said, our 2021 production estimate will average ~360 kbd lower than that in 2020. The primary driver in our assumption of production recovery in 2021 is based upon our belief that recovery in production will not be driven by capex and that companies with strong balance sheets will likely return to a growth profile relatively quickly,” reads the report.
“Through highgrading of acreage, cost reductions, and further increases in efficiencies, the bank believes that US oil producers will likely do more with less. Additionally, as we have viewed this to be the case in the US natural gas market, US oil production growth does not need to be driven by the masses. Rather, we believe that a change in the production profile in 2021 can be done by several key companies that are likely positioned with a strong balance sheet to regain market share.”
The return of curtailed production is likely to place near-term pressure on price, ultimately suggesting downside risk for WTI price in June, according to JP Morgan.
“However, we believe that the progressive return of virus-impacted demand will likely help to continue to provide balance to the US oil market as natural declines take hold of the supply-side. This also assumes that US imports average ~2.4 mbd during 2Q20,” reads the report.
Thus, while the bank’s 2Q20 price forecast will have to be significantly adjusted higher (mostly because of our overestimation in US imports in May), JP Morgan assumes that 3Q20 price forecast of $27/bbl is at risk for a minimal revision higher at the current time.
“The most pressing risk to our current price forecast is the further tightening of the US market in the near term which would further support prices. If this were to be the case, then the US oil market would have to contend with producers beginning to complete wells they deferred as a result of the price swoon observed in March. Our assumption at the current time is that the deferral in the completion of wells will last until 4Q20; however, further near-term price strength could encourage these wells to be completed even sooner as producers bring production shut-ins back on line. While not only adding near-term upside risk to our forecast, we believe this would also provide some downside risk to our 4Q20 price forecast of $34/bbl, as US oil production would likely realize higher than our current December 2020 exit level of 11.2 mbd.”
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