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World Oil Supply - December 2016

Source: OPEC_RP161207 12/14/2016, Location: Europe

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Preliminary data indicates that global oil supply increased by 0.53 mb/d m-o-m to average 96.84 mb/d in November. Non-OPEC oil supply is estimated to average 56.20 mb/d in 2016, a contraction of 0.78 mb/d over the previous year, unchanged from the last MOMR. For 2017, the forecast for non-OPEC oil supply growth was revised up by 70 tb/d to 0.30 mb/d. It is now expected to average 56.50 mb/d.

OPEC NGLs are expected to increase by 0.15 mb/d to average 6.43 mb/d in 2017, following growth of 0.16 mb/d in 2016. According to secondary sources, OPEC crude oil production averaged 33.87 mb/d in November, presenting an increase of 0.15 mb/d from the previous month. At the 171st Ministerial Conference, OPEC decided to implement a new OPEC-14 production target of 32.5 mb/d, effective 1 January 2017.

Non-OPEC supply
Non-OPEC oil supply in 2016 has decelerated sharply by 0.78 mb/d, to average 56.20 mb/d after seeing tremendous growth of 2.33 mb/d in 2014 and 1.48 mb/d in 2015. Despite the collapse of oil prices, non-OPEC oil supply grew by 2.3 mb/d during an 18-month period, from July 2014 to December 2015. From a peak output level of 57.47 mb/d in December 2015, non-OPEC supply is estimated to have fallen by some 1.9 mb/d to average 55.64 mb/d in September 2016.

The impact of low oil prices on US onshore crude oil production led to a decline of about 1.1 mb/d from March 2015 to average 7.2 mb/d in August 2016. This impact has also been seen in Canadian conventional, Brazilian, Colombian and Chinese crude oil output in the current year.

Total OECD oil supply in 2016 is estimated to decline by 0.56 mb/d to average 24.72 mb/d. Contributing to the decline will be OECD Americas, OECD Europe and OECD Asia Pacific, with -0.54 mb/d, -0.01 mb/d and -0.02 mb/d, respectively.

Total oil output from DCs will average 11.22 mb/d in 2016, a decrease of 0.09 mb/d compared with growth of 0.20 mb/d in 2015. These declines are expected to come from Other Asia with -0.01 mb/d, Latin America with -0.08 mb/d and Africa -0.02 mb/d, while oil supply from the Middle East is estimated to increase by 0.01 mb/d.

Total FSU oil supply in 2016 is expected to increase by 0.16 mb/d. Other Europe output will remain steady at 0.14 mb/d, while China’s supply is expected to see a deep decline of 0.29 mb/d over the previous year.

The US, China, Mexico and Colombia saw the highest declines of all non-OPEC countries with a total of 0.95 mb/d in 2016, while Russia, Brazil, Norway, the UK and Congo were seen to be growing.

Non-OPEC oil supply in 2017 is expected to grow by 0.30 mb/d over 2016 to average 56.50 mb/d, indicating an upward revision of 70 tb/d compared with the last MOMR. Non-OPEC supply contraction estimations for 2016 will change to growth in 2017 for several reasons – the expectation of higher oil prices, lower declines in OECD Americas and China, as well as higher growth in Latin America, Africa and FSU. Supply growth in DCs and FSU of 0.29 mb/d and 0.26 mb/d in 2017 will be partially offset by declines in OECD and China by 0.17 mb/d and 0.10 mb/d, respectively. The forecast remains subject to growing uncertainties over the world economy and the impact on performance of non-OPEC production, including the behaviour of US tight oil production, planned production adjustments, the on-time implementation of Brazilian projects, geopolitical concerns, as well as the effects of spending revisions by international oil companies (IOCs).

On a country basis, the main contributors to growth in 2017 are expected to be Brazil with 0.25 mb/d, Kazakhstan with 0.21 mb/d, Canada with 0.17 mb/d, Russia with 0.08 mb/d, Congo with 0.07 mb/d and Ghana with 0.04 mb/d. Mexico, the US, China, Colombia, and Azerbaijan are expected to show the strongest declines.

Key risk factors, including geopolitical tensions in some oil producing territories, technical development bottlenecks and, most importantly, oil price levels, will continue to have an impact on supply growth expectations.

Total OECD liquids production in 2016 is estimated to contract by 0.56 mb/d to average 24.72 mb/d, unchanged from November’s MOMR. In 2017, OECD supply is forecast to average 24.55 mb/d, representing a contraction of 0.17 mb/d.

OECD Americas
OECD Americas’ oil supply in 2016 is estimated to average 20.53 mb/d, showing a decline of 0.54 mb/d y-o-y. Supply in the US and Mexico is expected to decline in 2016, while it will grow in Canada. In 2017, supply in the region is expected to decline by 0.16 mb/d, to average 20.37 mb/d. While declines are anticipated in the US and Mexico, Canada is expected to see robust growth of 0.17 mb/d.

According to the latest US Energy Information Administration (EIA) information, crude oil production averaged 8.58 mb/d in September, some 167 tb/d lower than in August, of which 139 tb/d is attributed to a contraction in the US Gulf of Mexico’s oil output. Crude oil production in September is about 1.0 mb/d lower than its peak in April 2015. Tight crude production declined by 0.72 mb/d from its peak of 4.65 mb/d in March 2015. US total liquids supply has been declining since November 2015 from 14.16 mb/d, to average 13.56 mb/d in September 2016.

Shale drillers in the US have slashed spending and cut the number of workers this year amid the lower oil price environment. Data shows that US onshore crude oil output began to decline after reaching a peak of 9.6 mb/d in April 2015, although production in some shale patches, including Utica, Spraberry, Bonespring, Wolfcamp, Woodford and Austin Chalk, held output steady or saw minor growth. Crude oil output declined in all of the main producing states: Texas declined from 3.6 mb/d in March 2015 to average 3.16 mb/d in September 2016 and oil output decreased in North Dakota by 0.24 mb/d, from a peak of 1.2 mb/d in June 2015. In 3Q16, US liquids production declined by 0.18 mb/d q-o-q to average 13.50 mb/d, lower by 0.63 mb/d y-o-y. A further decline of 20 tb/d q-o-q is expected in 4Q16 to average 13.48 mb/d. Hence, US total oil supply is anticipated to decline by 0.42 mb/d, to average 13.62 mb/d in 2016.

US oil rig count
According to Baker Hughes’ latest weekly report for 2 December, the total drilling rig count in the US decreased by 140 rigs, or -19% y-o-y, to 597 rigs. More than 97% of this decline came from onshore fields. Oil field rigs dropped by 12% from the same period a year earlier, while the number of active rigs in US gas fields declined by 38%. In total, there was a 14% decline in the oil rig count in tight oil regions to average 471 rigs. This was broadly in line with a decline in horizontal drilling of 15%, y-o-y.

US oil and gas companies are expected to step up activity in 2017 as they start to increase their spending amid a recovery in prices. According to consultancy Deloitte, the bulk of activity will be focused on the completion business, with very little investment going into exploration. A survey by the consultancy firm of 251 oil and gas industry executives, done between June and July, shows that 43% expect an increase in upstream capital expenditures (capex) next year, while 25% expect an increase this year. About 28% expect capex levels to remain unchanged this year and 27% think they will stay flat next year. Total liquids production is forecast to pick up only marginally by the beginning of 3Q17, with minor growth of 30 tb/d, to average 13.43 mb/d, and to decline by 0.15 mb/d for the whole year to average 13.46 mb/d. Crude oil supply is forecast to decline by 0.22 mb/d in 2017 to average 8.64 mb/d, on top of the 0.56 mb/d decline in 2016. Some of the declines in onshore crude in 2017 will be offset by growth of 0.15 mb/d in the Gulf of Mexico. Nevertheless, growth in NGLs and biofuels output is expected to increase by 47 tb/d and 20 tb/d, respectively. The main component of US oil output – tight oil – is forecast to contract by 0.28 mb/d in 2017.

Canada and Mexico
Oil supply in Canada is expected to increase by 10 tb/d in 2016, to average 4.43 mb/d, unchanged compared with the previous MOMR. Preliminary estimates place August Canadian oil output at 4.52 mb/d, some 100 tb/d lower than in July. In August, oil sands output – bitumen and synthetic crude – decreased by 0.10 mb/d to settle at 2.51 mb/d, while conventional oil increased by 64 tb/d to 1.17 mb/d. Production of NGLs declined by 68 tb/d to average 0.84 mb/d. Oil sands output is expected to increase by 0.54 mb/d q-o-q in 3Q16 to average 2.52 mb/d, as upgraders return to work and total liquids production will reach 4.51 mb/d. By adding upgraders, higher synthetic crude output is expected to be online in the coming months, but there is still a gap of about 300 tb/d to reach the previous year’s level of 0.95 mb/d.

Canada is expected to be the third-largest source of non-OPEC supply growth in 2017 after Brazil and Kazakhstan, expanding by 0.17 mb/d y-o-y to 4.60 mb/d. Growth will come mainly from the ramp-up of oil sands projects (Surmont 2, Christian Lake, Sunrise and Kearl), as well as new start-ups of heavy oil thermal projects (Edam East, West and Vawm).

Canada’s overall rig count for the week ending 2 December saw 26 more units w-o-w to reach a total of 200, all active onshore. Y-o-y, the rig count in Canada indicated an increase of 23 rigs. After decreasing to a minimum of 26 rigs at the beginning of the wildfires in Fort McMurray last May, the number of active rigs in Alberta, the main state for production of oil sands reached an average of 128 rigs, higher by 20 rigs w-o-w. The other main producing provinces are Saskatchewan and British Colombia, registering 44 and 23 rigs on 2 December, respectively.

Mexican liquids production in 2016 is expected to decline by 0.13 mb/d to average 2.47 mb/d, following a heavy annual decline of 0.20 mb/d in 2015. Oil output in 3Q16 declined by 30 tb/d to average 2.46 mb/d, q-o-q, and the preliminary oil supply for October shows another 20 tb/d of decline, m-o-m. According to this annual decline rate trend, oil production will fall by 0.18 mb/d to average 2.30 mb/d next year.

The biggest declines to date came from Cantarel and Ku-Maloob-Zap (KMZ). Following steep declines in smaller domestic fields and a cut in spending by the state energy company Pemex, Mexico plans to shut down parts of its low-profile oil fields. The Pemex budget for 2017 will fall by $4.6 bn from this year to $2.1 bn.

Mexico has held an historic first deepwater bidding round, auctioning off 10 blocks and a farm-out discovery on its side of the Gulf of Mexico. The auction featured 10 deepwater blocks in two separate basins, as well as a deepwater farm-out field containing a significant discovery belonging to Pemex.

OECD Europe
Total OECD Europe oil supply, which grew by 0.15 mb/d to average 3.76 mb/d in 2015, is expected to see a minor decline this year – by 10 tb/d – to average 3.75 mb/d. This is due to the higher decline in mature oil fields in Norway, following lower investment in production drilling, as well as a decline of 60 tb/d in Other OECD Europe.

Norway’s oil supply in 2016 is expected to grow by 20 tb/d from the previous year to average 1.96 mb/d. Preliminary production figures for October show average production of 2.10 mb/d for oil, NGLs and condensate, which is 0.49 mb/d, or more than 30%, higher than in September 2016, due to the return from maintenance.

A report from the Norwegian Petroleum Directorate (NPD) has shown that daily liquid production in October averaged 1.71 mb/d of oil, 0.35 mb/d of NGLs and 33 tb/d of condensate. Crude oil production in October was higher by 22.7% from a month earlier. This was due to production at the K?rst? oil field going offline for maintenance and production at the Goliat oil field being stopped at the end of the month following gas detection in an unexpected area during a planned venting of gas, as part of a maintenance operation. Nevertheless, production has now resumed at the Goliat field in the Barents Sea following a month-long shutdown. Despite the oil output decline in September, liquids production up to the end of 3Q16 is still higher by 30 tb/d compared with the same period a year earlier. For 2017, a minor decline of 10 tb/d is forecast due to a higher decline rate outpacing growth coming from field ramp-ups.

The UK’s oil supply, despite higher maintenance in 2016, is anticipated to grow by 50 tb/d y-o-y to average 1.02 mb/d, with the ramp-up of new fields since 4Q15 offsetting steep underlying declines. UK efforts to maintain competitiveness are bearing fruit as last year saw UK oil output jump for the first time in 15 years, increasing by 11.5% to 0.97 mb/d. UK liquids production in October 2016 was lower by 70 tb/d, averaging 0.82 mb/d. A minor decline of 10 tb/d is anticipated for next year.

Developing Countries
Total oil production from the group of Developing Countries (DCs) will decline by 90 tb/d y-o-y to average 11.22 mb/d in 2016. The main reasons for this year’s decline are much lower annual output in Latin America, averaging 5.11 mb/d, and, to a lesser degree, in Africa, averaging 2.11 mb/d, and Other Asia, which saw a total supply of 2.71 mb/d. Oil production in non-OPEC Middle East is predicted to increase by 10 tb/d in 2016, to average 1.28 mb/d.

In 2017, DC supply is forecast to grow by 0.29 mb/d, to average 11.50 mb/d. The key region is Latin America with growth of 0.22 mb/d – mainly from Brazil - to average 5.33 mb/d and, to a lesser degree, Africa, increasing by 90 tb/d – mainly from Congo and Ghana – to stand at 2.20 mb/d. Other Asia’s oil supply will see minor growth of 10 tb/d to average 2.72 mb/d, while a decline of 20 tb/d is expected for the Middle East, to stand at 1.26 mb/d next year.

Latin America
Brazil’s liquids supply is expected to average 3.14 mb/d in 2016, an increase of 0.08 mb/d over the previous year. Preliminary crude oil production shows a decrease of 50 tb/d, m-o-m in October to average 2.6 mb/d, based on Petrobas’ trend. This was due to maintenance on different platforms and one FPSO in the Lula field. It is expected that the FPSO Cidade de Caraguatatuba will start-up in December before remarkable new capacity scheduled to start-up next year will boost the reservoir’s presalt output.

As of 2017, Brazil’s Petrobras will begin seeking offers for the construction of seven new offshore oil platforms envisioned in its current investment plans. Oil production is expected to increase by 0.25 mb/d to average 3.40 mb/d when these projects materialize next year. Petrobras is seeking to ramp up production as part of a five-year, $74.1 billion capital spending plan announced in late September. It slashed investments from a prior plan by 25%, seeking to refocus on core operations.

FSU, other regions
FSU’s oil supply is expected to grow by 0.16 mb/d in 2016 to average 13.85 mb/d, unchanged from the previous report. In 2016, oil production in Russia and Azerbaijan will increase, while decreasing in Kazakhstan, despite the early startup of the Kashagan field in October and in FSU Others. The oil production growth forecast for 2017 was revised up this month by 70 tb/d to 0.26 mb/d.

Russia’s oil production was more or less stagnant at 11.29 mb/d in November and higher y-o-y by 0.40 mb/d. Russian oil output is expected to increase by 0.20 mb/d to average 11.05 mb/d in 2016. Russia will benefit next year from exploitation of new oil fields in Western Siberia, Eastern Siberia, the Arctic and the Caspian which started up in 2016. It is expected that these oil fields, with a total peak capacity of 0.8 mb/d, could compensate for annual decline rates in mature fields, which are estimated at 3.7%–4.0% per annum.

The Russian oil industry has managed to perform well and both investment and production are growing, despite low oil prices. Investment in the energy sector – which should rise by 15% in 2016 to 3.6 trillion rubles ($55.5 billion) – has materialized, despite the challenging market environment. Russian companies have maintained, or even increased, spending over the past two years, capitalizing on a weaker ruble. While upstream capex for the seven largest companies declined by 18% and 10% in USD terms in 2015 and 2016, respectively; in ruble terms, spending rose by 30% in 2015 and was maintained at this level in 2016.

On 10 December, Russia and ten other non-OPEC producers agreed in a Ministerial Meeting with OPEC Members to adjust their production, voluntarily or through managed decline, starting from 1 January 2017 for six months, extendable for another six months, to take into account prevailing market conditions and prospects. The combined reduction target was agreed at 558 tb/d.

Azerbaijan’s oil supply is anticipated to average 0.87 mb/d, indicating minor growth of 10 tb/d in 2016. Azeri crude oil output in September decreased by 13 tb/d to average 0.76 mb/d. Hence, total oil production (crude plus NGLs) was pegged at 0.84 mb/d in September. In 3Q16, output reached 0.86 mb/d, down 20 tb/d from 2Q16. It is anticipated that oil output in the next months will increase as the deepwater Guneshli platform returns from maintenance. Nevertheless, the East Azeri platform, with 80 tb/d of capacity, was offline for most of November. A decline of 30 tb/d is predicted for 2017 to average 0.84 mb/d.

Kazakhstan’s crude oil output increased by 149 tb/d m-o-m to stand at 1.38 mb/d, thus recovering from maintenance, but the main share of Kashagan’s production came on stream by month-end. Thus, October monthly liquids output was higher m-o-m by 0.15 mb/d and by 0.16 mb/d y-o-y. The original ramp-up plan for 2016 was to reach 0.18 mb/d by the end of year. If this transpires, some 80 tb/d of additional capacity will be added to current production by the end of December. Kazakh oil supply in 2017 will grow by 0.21 mb/d to average 1.77 mb/d, through Kashagan’s production ramp-up.

China’s supply is expected to contract by 0.29 mb/d over the previous year to average 4.09 mb/d in 2016. Chinese oil output decreased in October – following a minor increase in September – by more than 100 tb/d to 3.78 mb/d m-o-m. Therefore, total China liquids supply – including unconventional liquids – was at 3.88 mb/d in October. China's daily crude oil production in October fell to its lowest point in more than seven years, as producers remained reluctant to drill new wells amid tepid oil prices and as output dropped in mature oil fields.

Producers have not ramped up output even as oil prices rebounded in October. Many of them see the uptick in prices as unsustainable. However, if crude prices were between $45-50/b, then the energy giant would open new discovered reserves, according to Sinopec’s chairman. Chinese domestic liquids supply dropped by 0.28 mb/d during the first three quarters of the current year to average 4.11 mb/d.

In 2017, oil production is expected to continue in the same direction, but at a slower pace, dropping by 0.10 mb/d y-o-y to an average of 3.99 mb/d. Offshore companies plan to start up new projects at Chunxiao, Weizhou 11-4 North Phase II and Enping 23-1 in 2017, but the main state-owned oil companies have cut their capital expenditures, as well as output.

OPEC NGLs and non-conventional oils
OPEC NGLs and non-conventional liquids are estimated to average 6.29 mb/d in 2016, unchanged from the previous MOMR and representing growth of 0.16 mb/d over the previous year. In 2017, production of OPEC NGLs and non-conventional liquids is projected to average 6.43 mb/d, also unchanged and representing an increase of 0.15 mb/d over the previous year.

OPEC crude oil production
According to secondary sources, OPEC crude oil production in November increased by 151 tb/d compared to the previous month to average 33.87 mb/d. Crude oil output increased the most in Angola, Nigeria and Libya, while production in Kuwait and Saudi Arabia showed the largest decline.

A new OPEC-14 production target of 32.5 mb/d as per 1 January 2017 represents a reduction of around 1.2 mb/d from October production levels.

World oil supply
Preliminary data indicates that global oil supply increased by 0.53 mb/d in November to average 96.84 mb/d. An increase in non-OPEC supply – including OPEC NGLs – of 0.38 mb/d and OPEC crude production of 0.15 mb/d boosted global oil output in November. The share of OPEC crude oil in total global production stood at 35.0% in November unchanged from the month before. Estimates are based on preliminary data for non-OPEC supply, direct communication for OPEC NGLs and nonconventional liquids, and secondary sources for OPEC crude oil production.

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