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Markets

OPEC sees US shale output recovering further on oil rally

  • Leaves 2021 oil demand growth forecast at 5.90 million bpd.
  • OPEC December output rises by 280,000 bpd on Libya, UAE, Iraq.
  • Extent of 2021 economic recovery uncertain as virus persists.
14 Jan 2021

LONDON: The outlook for US shale oil is slightly more "optimistic" due to rising prices and output will recover further in the second half of 2021, OPEC said on Thursday, in a sign its policy of cutting output is helping rivals pump more.

US shale producers are not part of a pact between OPEC nations and others including Russia - the so-called OPEC+ - to reduce their output to support prices and reduce oversupply.

US total oil supply will rise by 370,000 barrels per day (bpd) in 2021 to 17.99 million bpd, the Organization of the Petroleum Exporting Countries said in a monthly report, up 71,000 bpd from the previous forecast.

A significant rebound in shale could hamper efforts by OPEC and its allies to support the market. Oil prices hit an 11-month high above $57 a barrel this week, supported by OPEC+ supply restraint and a voluntary cut by Saudi Arabia.

"The 2021 supply outlook is now slightly more optimistic for US shale with oil prices increasing, and output is expected to recover more in the second half of 2021," OPEC said.

Also in the report, OPEC left its forecast for world demand unchanged, saying oil use will rise by 5.90 million bpd this year to 95.91 million bpd, following a record 9.75 million bpd contraction last year due to the pandemic.

OPEC said there was upside potential in its forecast of 4.4% economic growth in 2021, but new coronavirus variants, rising infections and a slow start to vaccination programmes may cloud the recovery at least for the first quarter.

"While a strong global economic recovery in 2021 remains very likely, the depth and magnitude of this year's rebound remains uncertain," OPEC said.

"The forecast will be thoroughly reviewed once more in the coming month."

SMALL SHALE GAIN

For now, the shale rebound is small. OPEC expects US tight crude output, another term for shale, to rise by 70,000 bpd this year to 7.37 million bpd and left its non-OPEC supply forecast steady overall.

But rapid growth in the non-conventional oil supply has caused problems for OPEC in the recent past.

Rising shale output, encouraged by OPEC's policy of cutting supply to support prices, helped create a glut during 2014-2016. This glut eventually prompted the creation of OPEC+, which began to restrain output in 2017.

OPEC+ cut supply by a record 9.7 million bpd last year and is pumping an extra 500,000 bpd in January under a plan to unwind the curbs gradually. Most producers will hold steady in February and Saudi Arabia is cutting output by 1 million bpd next month and March.

The report showed OPEC output is increasing already. Output rose by 280,000 bpd to 25.36 million bpd in December, it said, driven by Libya, an OPEC member exempted from making cuts, plus quota-bound countries Iraq and the United Arab Emirates.

The group forecast demand for its crude will be 27.2 million bpd this year, also unchanged from last month. That would still allow for higher average OPEC production in 2021.