OPEC+ must “carefully control” oil supplies as U.S., Guyana production grows rapidly

Grant Smith, Bloomberg December 13, 2023

(Bloomberg) – OPEC+ will need to carefully control oil supplies for another five years to avoid a “meltdown” in crude prices, according to Rapidan Energy Group.

ExxonMobil's Liza Unity FPSO

While global oil demand won’t peak for at least another decade, supplies from outside OPEC — particularly the U.S. — are growing much faster than previously estimated, the Washington-based consultant said in its latest long-term report.

“For the next several years, at least, continually unified, vigilant, and effective OPEC+ supply management will be required to prevent a collapse in oil prices,” said Rapidan, founded by former White House official Bob McNally.

Oil prices have retreated 11% in London this year despite record global consumption, trading near $75 a bbl amid a deteriorating economic backdrop and soaring supplies from the U.S. and elsewhere. Traders have shrugged off the latest production cutbacks from Saudi Arabia and its partners in OPEC.

Over the longer term, the outlook for oil appears fragile as forecasters such as the International Energy Agency predict that consumption will max out this decade, as consumers shift to low-carbon energy and electric vehicles to avoid catastrophic climate change.

Rapidan — which correctly anticipated a price collapse during the Saudi-Russia price war of 2020 — doubts that improved fuel efficiency and the adoption of electric vehicles will be enough to cap oil demand so soon.

“The fashionable peak demand consensus is a mirage,” the consultant said. “The failure of demand to peak by 2030 will be the next big surprise to hit the market.”

Nonetheless, OPEC+ faces pressure in the next few years from surging rival supplies, Rapidan added. Non-OPEC supplies will increase by 700,000 bpd each year to 2030 — rather than the declines the consultant previously forecast — thanks to growth in the U.S., Guyana and Brazil.

OPEC+ collectively holds almost 5 MMbpd of spare production capacity — or about 5% of world supplies — and must calibrate its return “carefully,” Rapidan said.

It will have the opportunity to do this after 2030, when slowing non-OPEC supply growth will cause the global market to tighten “severely,” according to the report.

“Soggy fundamentals will require effective OPEC+ supply management over the next five to keep oil prices in an $80-$100 range,” Rapidan said. “We assume OPEC+ will successfully manage the market in the run-up to tighter conditions later this decade.”

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