This time it’s different: apart from OPEC +, oil growth is stalling

(Bloomberg) – “This time is different” perhaps the most dangerous words in business: billions of dollars have been lost betting history won’t repeat itself. And yet, now in the oil world, it looks like it really will: for the first time in decades, oil companies are not rushing to increase production to chase rising oil prices as Brent approaching $ 70. Even in the Permian, the prolific shale basin at the center of America’s energy boom, drillers are resisting their traditional boom and bust spending cycle. The oil industry is on the ropes, coerced by Wall Street investors demanding that companies spend less on drilling and instead return more money to shareholders, and climate change activists pushing against fossil fuels. Exxon Mobil Corp. is paradigmatic of the trend, after its humiliating defeat at the hands of a tiny militant who elbows on the board of directors. The dramatic events in the industry last week only add to what appears to be an opportunity for OPEC + producers, giving the Saudi-Russian-led coalition more leeway to bring back their own production. While non-OPEC production is not rebounding as fast as many had expected – or feared based on past experience – the cartel will likely continue to add more supply at its June 1 meeting. “Criminalization” Shareholders ask Exxon to drill less and focus on getting money back to investors. “They threw money down the borehole like crazy,” Christopher Ailman, chief investment officer for CalSTRS. “We really saw this business heading for the hole, not surviving into the future, unless it changes and adapts. And now they have to do it. Exxon is unlikely to be alone. Royal Dutch Shell Plc lost a historic legal battle last week when a Dutch court told it to significantly reduce emissions by 2030, which would require less oil production. Many industry players fear a wave of lawsuits elsewhere, with Western oil majors being more immediate targets than state-owned oil companies that make up a large part of OPEC’s output. “We are seeing a shift in stigma towards the criminalization of investing in higher oil production.” said Bob McNally, chairman of consultant Rapidan Energy Group and former White House official. While it is true that non-OPEC + production is declining after the 2020 crash – and the ultra-depressed levels of April and May of last year – it is far from a full recovery. Overall, non-OPEC + production will increase this year by 620,000 barrels per day, less than half of the 1.3 million barrels per day that it fell in 2020. Supply growth forecast for the rest of this year “falls short of matching” the expected increase in demand, according to the International Energy Agency. Beyond 2021, oil production is expected to increase in a handful of countries, including the United States, Brazil, Canada and new oil producer Guyana. But production will decline elsewhere, from the UK to Colombia, Malaysia and Argentina. As non-OPEC + production grows less than global demand for oil, the cartel will control the market, executives and traders said. It’s a major break with the past, when oil companies reacted to rising prices by rushing to invest again, boosting non-OPEC production and leaving Saudi-led ministers Abdulaziz bin Salman a much more difficult balance. the lack of growth in non-OPEC + oil production is not registering much in the market. After all, the coronavirus pandemic continues to restrict global demand for oil. This could be more visible later this year and into 2022. By then, the Covid-19 vaccination campaigns should bear fruit, and the world will need more oil. Iran’s expected return to the market will provide some of that, but there will likely be a need for more. When that happens, it will largely be up to OPEC to bridge the gap. A signal of how the recovery will be different this time around is the number of drilling operations in the United States: it is gradually increasing, but the recovery is slower than it was after the last major oil price collapse in 2008. -09. Shale companies are keeping their commitment to return more money to shareholders through dividends. While before the pandemic, shale companies reused 70-90% of their cash flow for new drilling, they now maintain that metric at around 50%. The result is that US crude production has stabilized at around 11 million barrels per day. since July 2020. Outside the United States and Canada, the outlook is even bleaker: at the end of April, the number of oil rigs outside North America stood at 523, lower than it was yesterday. was one year old, and nearly 40% lower than the same month two years earlier, according to data from Baker Hughes Co. When Saudi Energy Minister Prince Abdulaziz predicted earlier this year that “” drilling, baby, drill “is gone forever,” that sounded like a bold call. As ministers meet this week, they might dare to hope he’s right. More stories like this are available on Bloomberg .comSubscribe now to stay ahead with the most trusted source of business news. © 2021 Bloomberg LP


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