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BofA - Global Energy Weekly: Eyes on the Spare Supplies

OPEC+'s 9mn b/d of spare capacity stands ready to ramp…

In the wake of the 2Q20 oil demand collapse, OPEC+ struck an unprecedented deal to remove nearly 10mn b/d of supply from the market. Now, with Brent trading into the $60-65 range, we expect OPEC+ to counter, adding more than 1.3mn b/d of supply in 2Qe and ramping further into year-end to keep prices and balances in check. Over the medium term, we think OPEC+ coordination will likely continue as the group wields its spare capacity in an effort to manage prices. GCC countries will likely have to carry meaningful spare capacity as demand growth slows and modest non-OPEC+ increases fill the gap. 

…while US shale takes a back seat over the medium term

During 2021-26, non-OPEC is set to add more than 1.5mn b/d of gross capacity (ex-shale), a rate similar to what was delivered during 2015-20. The difference today is that US E&Ps have shifted their focus away from growth and towards shareholder returns. The result is slower US supply growth, which we think will average less than 400k b/d YoY for crude oil and NGLs during 2021-26. Previously, US output grew more than 1mn b/d YoY during 2015-19. Also, OPEC gross capacity additions look set to shrink dramatically, from 600k b /d in 2015-20 to just 200k b/d in 2021-26, but the group's existing spare capacity serves as a buffer, making up for limited investment.

LatAm is key source of supply growth and Iran remains a ?

Deepwater projects in offshore Guyana and Brazil dominate the medium term horizon. During 2021-26, we expect these two countries to deliver roughly 1.8mn b/d of supply, and neighboring Suriname may see new volumes during 2025-26 as well. These new undertakings are complex and a history of project delays in Brazil's pre-salt suggests that there is some downside risk to these growth expectations. Geopolitics continue to plague OPEC producers, creating uncertainty over the medium term. Iran and Venezuela could see sanctions relief, which could lead to 1.7mn b/d and 500k b/d of incremental supply. Meanwhile, Libyan output could fall back towards zero if tensions flare again. 


Posted by : Dubai PR Network Editorial Team
Viewed 2294 times
PR Category : Banking & Investments
Posted on : Monday, February 22, 2021  3:10:00 PM UAE local time (GMT+4)
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