According to Jadwa Investment (JI), global oil supply grew by 1.7 million bpd, year on year, in Q3 2014, with non-OPEC supplies growing by 1.8 million bpd as a result of increased US oil production. In Q4 2014 there will be continued output increases also recorded by OPEC as a partial resumption of output from Libya contributed to year on year increases.
The shale revolution in the US continues apace with production rising by 13% in Q3 2014, year on year. As economic recovery builds momentum, JI expects to see increased investment in both non-conventional and conventional oil resources, which will maintain output by 13% in Q4 2014. US production will average 8.46 million bpd in 2014 and 9.28 million bpd in 2015 and this will be accompanied by declining oil imports, which will average 7 million bpd in 2014 and 6.2 million bpd in 2015. By 2015, imports of oil will represent 36% of total US energy consumption, compared to 58% in 2010.
In 2014, total Russian crude production will grow by just under 1%. Russian oil output growth has been on a downward trend in recent years as many of the western Siberia oilfields, which yield two thirds of total production, are maturing an require more capital intensive investment to maintain output levels. In addition, new US and EU sanctions, at the beginning of September, are likely to further impact long term oil exploration and make financing for all the major Russian energy companies more difficult.
At the same time, political tensions remain high around Crimea. JI sees the likelihood of disruption on Russian oil exports, amounting to roughly 5 million bpd, as very low. Energy trade between EU and Russia is too important for both sides and will only be affected if there is a significant deterioration in the current geopolitical situation.
Total output from OPEC dropped by 5.1% in Q3 2014, year on year. OPEC continues to be affected by sizeable falls in Libyan output despite some improvement in output recently. Other sizeable drops in Q3 2014, year on year, were seen in Iran (-17.7%), Nigeria (-5.5%) and Saudi Arabia (-3.1%).
Latest OPEC data shows that Iraqi crude production rose 0.5%, year on year, in Q3 2014, to 3.1 million bpd. Southern Iraqi oilfields have been unaffected by civil strike in the country, resulting in exports increasing by 6% in Q3 2014, year on year. The loss of control of oilfields and infrastructure in the north of the country is keeping overall output broadly flat.
Since an attack on the Kirkuk-Ceyhan oil pipeline in early March there have been no exports out of the north, with production from northwen fields dropping to approximately 160 000 bpd from highs of 620 000 bpd in February. JI believes that the current situation in Iraq will not further impact oil output going forward but the main threat is likely to come from small scale attacks that add to negative market perception which, in turn, have a short term impact on oil prices. JI therefore forecasts that Iraqi oil production will remain around current levels for the foreseeable future.
An agreement between the government and rebel groups in Libya has resulted in the opening of two export terminals which has helped to push up production to an average of 0.4 million bpd in Q3 2014, 46% lower than the same period last year. Although these are welcome positive political development, JI expects a slow uptick in oil output from Libya since much of the oil infrastructure is likely to face technical delays due to damage and neglect. Furthermore, a significant downside risk remains in production relapsing as fighting between various political factions is still ongoing. As such, JI expects limited improvement in sustained Libyan production and exports for the remainder of 2014 and early 2015.
Iran’s crude output decreased 17.7% year on year in Q3 2014, to 3 million bpd, as rising levels of exports are helping to stabilize production. Under a Joint Plan of Action signed in November 2013 between the US and Iran, exports were to be limited to an average of 1 million bpd through July 2014. In the first half of 2014, Iran exported an average of 1.2 million bpd, which held steady in Q3 2014. China and India are the largest purchasers of Iranian crude but, most recently, Japan and South Korea have cut back on purchases whereas China has not, and is not expected to do so going forward.
Oil production from Nigeria decreased 5.5% during Q3 2014 year on year as exports from the country are finding it difficult to compete in the Atlantic basin, which has been oversupplied with light sweet oil produced in the US. The Nigerian oil industry also faces other problems, namely theft, sabotage and a worsening security situation, all of which adds to increased downside risk to the country’s oil output. According to the Nigerian National Petroleum Corporation (NNPC) approximately 0.3 million bpd of crude was lost to theft and sabotage in 2013. On top of this an insurgency in northern Nigeria is adding to security fears. So far, much of the security problems have been concentrated in the north but any spread of attacks further south could target oil infrastructure, which would no doubt contribute to fluctuating and unpredictable output.
Saudi Arabian crude production was down by 3.1% in Q3 2014, year on year, to 9.8 million bpd, compared to 10.1 million bpd over the same period in 2013, due to softer global demand and rising non-OPEC supplies, in specific US shale oil. Saudi production will fall to an average of 9.5 million bpd in Q4 2014 as non-OPEC output continues to accelerate and global oil demand is subdues due to a weaker than expected recovery in the global economy.
Overall, JI forecasts Saudi production to average 9.7 million bpd for 2014, up from 9.6 million bpd in 2013. Looking ahead into 2015, JI sees Saudi production declining slightly, but not dramatically. As the global economic recovery builds momentum in 2015, global oil demand should also pick up, supporting Saudi production levels at approximately 9.6 million bpd for the year. JI also expects Saudi Arabia to maintain its current share of total OPEC production, at approximately 32%, because they do not see Libyan supply returning to normal levels for the short to medium term, while security and infrastructure issue sin Iraq will prevent production from rising beyond current levels for the remainder of the year and hamper efforts to increase output in 2015.
Adapted from a report by Emma McAleavey.
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