OPEC expects its oil market share to fall amid growing US shale output

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OPEC on Tuesday said its share of global oil supply will diminish as US shale output expands, despite growing energy demand in non-OECD countries.

The organization’s production of crude oil and other liquids will fall to 32.8 million barrels per day (mbpd) by 2024, compared to 35 mbpd in 2019, it said in its World Oil Outlook report.

OPEC and its allies, including Russia, agreed to reduce their supply by 1.2 mbpd per day from January 1 this year as a measure to support market prices, a policy which dates to 2017.

Meanwhile, higher oil prices and rapid improvement in technology encouraged US shale firms to begin drilling in the Permian Basin of Texas and New Mexico, a region at the center of the country’s shale boom. US is now the world’s largest oil producer ahead of Saudi Arabia and Russia.

Among non-OPEC producing nations, the US will lead the way and contribute over 60 percent of the medium-term supply growth, which is projected to be 9.9 mbpd from 2018 to 2024, the report said.

“US tight oil is forecast to continue to expand at a strong pace,” it added.

OPEC’s comments indicate that the country’s shale growth will eventually recover from a slowdown inflicted by lower oil prices and energy firms’ commitment to improving shareholder returns.

The organization also sees “meaningful” contributions from Brazil, Norway and Canada, in addition to expected barrels from newcomer Guyana.

Recently at an investment forum in Saudi Arabia, Brazilian President Jair Bolsonaro said he plans to transform the energy-rich South American country into the sixth biggest oil producer in the world. It is currently the 12th largest.

OPEC also sees higher oil demand in non-OECD countries due to an expanding middle class, high population growth rates, and strong economic growth.

This would result in global oil demand growing at relatively “healthy” rates in the medium-term, it said.

The organization expects demand to reach 104.8 million barrels per day (mbpd) by 2024, up 6.1 mbpd from 2018, it said in the World Energy Outlook report. In an earlier report, OPEC had forecast a slight drop in 2019 oil demand growth due to trade tensions and a global economic slowdown.

OPEC also said that the impact of International Maritime Organization’s (IMO) regulation will be less “severe” than previously anticipated.

The new IMO regulation, which limits Sulphur content in marine fuels, will come into effect on January 1 and is expected to disrupt global shipping and refining sectors.

However, OPEC’s recent assessments indicate that the global refining system will have the flexibility to address the changes in the maritime sector’s fuel mix.

“Evolving market conditions and projections in terms of oil demand, liquids supply and oil refining, as well as developments within the shipping industry, have led to slight adjustments to previous IMO-related projections,” it said.

After falling in the medium-term, global crude exports will grow in the long-term on the back of additional Middle East exports to the Asia-Pacific region, according to OPEC.

While total crude trade will remain relatively stable, there will be a significant rise in exports from US and Canada, the report said.

Canada’s oil patch bas been struggling with pipeline bottlenecks, which have choked the supply of crude from the world’s fifth largest oil producer. The completion of several pipeline projects will allow producers to transport more crude to US Gulf Coast refiners.

OPEC expects supply from US and Canada to climb to a level just under five mbpd in 2025, up by around 3 mbpd from 2018.

US exports alone will overtake Russia and close in on Saudi Arabia in the next five years, the International Energy Agency (IEA) said in an earlier report.

The report also forecast an oversupply in refined products – gasoline and diesel – in the coming years due to lower demand, as well as commencement of new refinery units.

A growth in refinery throughput, or crude oil refining capacity, is anticipated to result in a surplus of about four mbpd by 2024, relative to OPEC’s demand growth estimate, with the largest build-ups expected in Middle East, US, Canada, Europe and China.

This may lead to higher competition and refinery closures after 2020, mostly in US, Canada and Europe, the report said.

Meanwhile, the only region with a projected medium-term deficit is Latin America, it added.

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