OPEC’s annual World Oil Outlook 2019 came out this past week and as usual offers some keen insight into the global oil market, Forbes writes in the article 3 Things To Know About OPEC’s Latest Oil Forecast.
Oil leads and accounts for 35% of global energy supply, and OPEC supplies 35% of the world’s oil. After some hesitation, OPEC’s annual outlook has become more bullish on U.S. shale oil production. In fact, OPEC now expects that the U.S. shale boom will continue, and our light tight oil will easily be adding the majority of new production over the next five years - the main bearish factor for pricing. Even from 2019-2030, U.S. tight oil output will balloon by another 5.3 million b/d to nearly 17.5 million b/d.
And a great article this past week from NYT also warned market bulls about Canada, Brazil, Norway, and Guyana. A “flood of oil is coming” from these four that will add an additional ~2 million b/d of supply in 2020 and 2021, perhaps enough to totally cover new global demand.
No wonder then that OPEC is feeling the pressure to not just extend its 1.2 million b/d production cut deal beyond March 2020, but to actually deepen it.
We all know about the ongoing importance for oil in transportation, about as irreplaceable a fuel as we have. Road transport accounts for about 45% of the world’s oil demand and lacks a significant substitute. Electric cars simply aren’t realistic: the average Tesla buyer, for instance, has a household income of $400,000 per year - more than six times the national average. Indeed, some 90 million oil cars are sold globally per year. In the U.S., where oil powers some 97% of transportation.
Road transport and petrochemicals explain why OPEC estimates that a $10.6 trillion investment is required in the global oil upstream, midstream, and downstream sectors over the next 20 years to meet non-stop rising demand. Americans still consume four times more oil than Chinese and 18 times more than Indians. As such, the growth opportunities for oil usage in China and India are immense. These two have accounted for 55% of new oil demand since 2010 alone. China’s “down years” are when 26 million oil cars are bought. India’s oil demand is expected to double over the next two decades. Looking forward, China and India will combine to add ~9-10 million b/d of incremental oil demand over the next 20 years, compensating for any potential consumption declines in the developed OECD nations.
