Friday, December 2, 2022

Big window of opportunity ahead for oil producers as major deficits loom

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Oil producers around the world, particularly in locations like Guyana, will soon have a window of opportunity as new analysis shows that 2021 could see monthly supply deficits reaching their highest level in years.

Low breakeven prices and good quality crude have allowed for investments to continue in Guyana despite the global pandemic. ExxonMobil, operator at the Stabroek block, said just days ago that output at the Liza Phase 1 Development is now at the full capacity of 120,000 barrels of oil per day.

Norway-based Rystad Energy said it expects the pandemic vaccination campaigns will help bring a rapid recovery going forward and this will see monthly supply deficits in 2021 starting from May, reaching a high of around 3.4 million barrels per day in August.

“As deficits continue uninterrupted through the year, August’s high could be repeated, if not exceeded by year-end,” Rystad Energy said.

Entering 2021, Rystad Energy expects a largely balanced oil market in January, with supply and demand hovering between 77.7 and 77.8 million bpd. The effect of global lockdowns will be felt even more in February and March as demand will not follow the growing supply and stay capped at 77.9 million bpd and 77.4 million bpd respectively, creating a surplus of 0.5 million bpd in February and 1.4 million bpd in March. A minor surplus will also be recorded in April, but the market will recover shortly after, Rystad Energy said.

Nevertheless, it pointed to other factors that would have an impact, one way or the other, on this outcome such as compliance with the latest OPEC+ agreement and potential upside in Iran’s production.

“There is always room for deviation from projections, especially in such a volatile environment as policies can change. The coming deficits will create extra room for OPEC+ to hike production from May-21 versus our base case, which in turn can affect monthly balances,” Rystad Energy said. “OPEC+ output, as usual, will have to fight for market share with US shale, which is currently turning a corner with increased activity.”

By 2022, Guyana is expected to have a second FPSO online adding an additional 220,000 bpd to the country’s output, with a third vessel already ordered which is expected in 2024. By the end of the decade production in the South American country will surpass the 1 million bpd mark.

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