On February 4, Joel Hancock, an oil expert at French investment bank Natixis, said that with reduced capital expenditures and fewer upstream pipeline projects, non-OPEC oil supply is unlikely to rebound to pre-epidemic levels in the short term. However, oil prices have been boosted by demand-side optimism and have approached $60, which will encourage some oil-producing countries to cheat on production reduction quotas.
Due to two major factors, short-term OPEC+ oil supply will be difficult to return to pre-epidemic levels
2020 , the number of exploration wells drilled in the North Sea hit a record low of just five, as the economic uncertainty caused by the outbreak and the oil industry downturn caused operators to shelve plans. According to analysis by consulting firm Rystad Energy, the number of drilling rigs operating globally offshore saw the largest monthly decline in 20 years from March to April 2020.
Speaking at a Natixis webinar, Hancock predicted that it is likely that OPEC members will step in to fill the supply gap in the coming months.
He said: “In the short term, we strongly believe that non-OPEC conventional supply will be difficult to make up for some of the losses we saw in 2020. A prolonged period of low oil prices has led to With increasing supply disruptions, it will be difficult to restore all production, and there are two reasons behind this. First, capital expenditures have been significantly reduced. To date, 60 companies have issued guidance for 2021, in line with the epidemic situation. Investment is down about 60% compared to previous levels. Secondly, there is very little pipeline construction for conventional oil upstream projects. According to our model, the oil and gas industry needs to deploy a considerable amount of capital expenditure to maintain stability. In order to maintain the December 2020 Exit rates, we expect about 400 rigs will be needed in the U.S. upstream, but there are currently about 290.” Hancock added that the current “negative investor sentiment” may intensify Any potential future supply deficit.
OPEC is expected to regain its dominant position in the oil market
France’s Natixis said that the future of the oil industry Growth may also rely on higher oil prices, which could spur capital spending. OPEC’s market share has continued to decline since 2010, driven by increased U.S. supply. However, as OPEC+ oil supply recovery is dragged down, it can put OPEC back in the lead.
Oil prices have risen somewhat in recent weeks, buoyed by optimism that vaccinations will boost oil demand. But Hancock said there are concerns that rising oil prices may encourage OPEC members, especially those whose economies have been harmed, to “cheat” on production reduction quotas.
There are also fundamental differences among OPEC+ members, especially Russia. Russia wants to follow a “market share strategy” and “lower marginal prices,” while Saudi Arabia is content with “market management.” This could lead to increasingly contentious meetings in the coming months.
Hancock added: “With oil prices at around $60 a barrel, rather than $40 or $50 a barrel, producers will have a greater incentive to cheat on production cut quotas, Because they are worried about competing suppliers filling the supply gap.”
Based on the above news, it can be seen that although non-OPEC oil production cannot recover in the short term due to various factors, to pre-epidemic levels, which will help OPEC strengthen its market leadership. However, with oil prices rebounding and approaching US$60, some OPEC oil-producing countries may not fulfill their production reduction quotas and secretly increase production, which may weaken the effect of the production reduction agreement and thus limit There is room for oil prices to rise, and investors need to remain vigilant about this. </p
