Opec predicts global oil glut to continue for two more years

The global oil glut could persist for another two years, says a draft report from the Opec producer group.

The paper comes ahead of the group’s meeting in Vienna next week.

In a draft report of Opec’s long-term strategy, the 12-member organisation does not foresee a cut in North American shale production for two years, Reuters reported.

In addition to a downturn in demand for oil, Opec’s oil supply will drop from 30 million barrels per day last year to 28.2 million bpd in 2017.

Amrita Sen, the chief oil analyst for UK-based Energy Aspects, said Opec’s shale production estimates depend on the tools used to measure.

“Energy Aspects believes that the shale production will fall next year, but some think 2017 – it really depends if [Opec] is using tight oil [shale] versus the rest of non-Opec [production],” she said.

The price of extracting tight oil, or shale deposits, is higher than the very mature oil-producing fields in the Middle East. Opec members believed that US shale producers would not be able to continue such high-cost production amid the oil price slump that has lasted nearly a year.

Brent crude has advanced to about US$60 per barrel, up from below $50 per barrel in January – the lowest price in six years.

“Generally speaking, for non-Opec fields already in production, even a severe low-price environment will not result in production cuts, since high-cost producers will always seek to cover a part of their operating costs,” the Opec report said.

“For future non-Opec production, only expectations of an oil price environment in the long term below the marginal cost of production may deter substantial non-Opec developments. Over the very long term, the economic threshold at which oil companies invest in upstream projects likely reflects their long-term oil price expectations.”

The Opec draft report identified shale oil as a possible turning point in the industry, signalling North America as a new swing producer. Opec is not expected to cut production when its members gather in Vienna next week, according to Ms Sen.

“Opec can afford to continue producing,” said one American mid-size company exploration and production manager operating in the Mena region.

He said that one major change that would take place was the shift in business needs, such as better management for mature fields like those in the GCC. “More so, certain areas of expertise will see a decline and more layoffs, while others will see an incremental uptick,” he said.


Follow The National’s Business section on Twitter

Share This Post