OPEC Can Meet One-Third of Rise in Global Demand

With non-OPEC producers poised to grow again, OPEC will need to increase oil output by just 2.2 million barrels per day to meet global incremental oil demand of about 5.5 million bpd in 2017-22, added the latest Global Energy Weekly from Bank of America Merrill Lynch.

While OPEC countries have the resources to grow production, OPEC revenue would likely be higher if no additional investments are made compared to scenarios where increased OPEC production leads to lower prices. For this reason OPEC oil output growth is likely to be limited over the next five years, Trade Arabia reported.

According of BofAML, Saudi Arabia, the UAE, Iraq and Iran are the only countries able to increase their output meaningfully in the medium term, while others such as Algeria, Nigeria or Venezuela would need massive investments to reverse current trends and boost output. Saudi Arabia would likely be better off maintaining steady production and allowing prices to rise to maximize their long-term oil revenue, the report said.

A combination of $65-per-barrel oil and 12-million-bpd production would bring in $4.30 trillion for the kingdom. Yet, given production costs of $10-to-$20 per barrel, it simply would not pay off for Saudi to aggressively invest in domestic oil production capacity, even by assuming a zero discount rate on incremental future revenues. US shale oil production could grow by 3.5 million bpd to 2022, the report said. Many oil companies around the world have survived the price meltdown by bringing down breakeven costs in the last two years. But what parts of the world can grow output in the years ahead?

“In our view, US shale oil producers will come out ahead and deliver outsized market share gains by 2022. Shale oil output in the US may grow sequentially by 600,000 bpd from 4Q16 to 4Q17 on increased activity in oil rigs and fast productivity gains,” said the BofAML report.

It added that assuming a gradual recovery in oil prices into a long-term average of $60 to $70 per barrel, average annual US shale oil growth is projected at 700,000 bpd in 2017-22.