BAKU, Azerbaijan, March 4
By Leman Zeynalova – Trend:
While OPEC+ output will rise, non-OPEC production will remain heavily constrained, Trend reports citing Fitch Solutions.
“Excluding a few pockets of growth in markets such as Brazil, Guyana and Norway, non-OPEC production is set for substantial decline, led by the US. US growth is dominated by the shale patch, where rapid well decline rates demand constant capital injections to maintain and grow production. Shale production had already lapsed deep into double digit declines and is unlikely to return to month-on-month growth until later in the year. In addition to this, the arctic blast in February has disrupted output in key shale plays including Eagle Ford and the Permian adding further pressure on shale producers in the near term,” reads the report released by Fitch Solutions.
The rally in prices has brightened the outlook, with WTI pushing above the average breakevens for new wells in most of the major basins. “However, it is our view that producers will continue to prioritise profitability over production growth this year. The shale patch has come under extreme financial strain over the past year and companies have signalled that the increased revenues will first be used to repair their balance sheets and return value to shareholders. Sustained shareholder pressure will likely keep the brakes on growth, even as prices rise. A Biden presidency, with its tightening environmental mandates, also poses longer-run risks to the sector. Although these do not impact meaningfully on our outlook for the next two years, we recognise downside risks stemming from in the form of a possible extension of the ban on new leases and a modification of the royalty rates.”
While supply growth will remain muted this year, demand is set for a healthy recovery, according to JP Morgan.
“Our data suggest that emerging market demand will recover to pre-pandemic levels within 2021, with global demand following on the next year. The outlook is less rosy for developed markets and we now estimate that peak DM consumption has been passed, with a combination of economic damage from the coronavirus and accelerated energy transitions subduing demand permanently below the levels seen in 2019. Nevertheless, there is substantial scope for growth from the 2020 lows and both EMs and DMs will be important drivers of the recovery this year.”
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