Wood Mac: Non-OPEC resilience impressive

Few short-term favors for the bulls, but a supply crunch could emerge over the horizon because of lower capital spending.
By Daniel J. Graeber  |  Sept. 28, 2017 at 6:36 AM
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Sept. 28 (UPI) -- In the short run, the overall stability for oil production outside the Organization of Petroleum Exporting Countries is a spoiler for the bulls, analysis finds.

OPEC in January began sidelining the equivalent of about 2 percent of the global demand for oil in an effort to drain on the surplus for the five-year average in total stockpiles. Through a variety of factors, including the short-term impacts from hurricanes in the United States, market levels are inching back toward balance.

Despite a rally that's lasted almost a month, analysis from consultant group Wood Mackenzie said the "lower-for-longer" situation for the price of oil lingers, leaving investments streams under pressure. For decline rates from producers outside of OPEC, however, analysis found relative stability.

Patrick Gibson, a research director examining the global oil supply, said decline rates are critical when considering market balance and recovery. Decline rates since 2015 have been around 5 percent and that rate should hold through the end of the decade.

"A stable rate of non-OPEC decline is a disappointing story for those looking for significant price support coming from declining conventional production," he said in an emailed statement.

In the United States, federal estimates predict crude oil production by next year will be almost 10 million barrels per day, an increase of around a half million bpd from the 2017 estimate. Harold Hamm, the chairman of U.S. shale oil company Continental Resources, said this week he felt federal estimates, however, were overstated in the "lower-for-longer" cycle.

Hamm in August said the results of a disciplined approach were "exceptional," leading him to raise the production guidance for 2017 by more than 20 percent over fourth quarter figures.

Capital discipline and operational efficiency have led to resilience for other non-OPEC producers. Production from Canada alone, Gibson said, should offset declines in production rates by about 0.6 percent through 2020.

The long-term situation, according to Wood Mackenzie, is much different, however.

"Although the present picture is one of resilience and smart spending, further gains remain unlikely," Gibson said. "With investment so low, the industry is potentially storing up problems for supply that won't become apparent until after the end of the decade."

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