Vitol Group, the world’s largest independent oil trader, expects U.S. production to increase by 700,000 barrels a day from December 2019 to December 2020, compared to growth of 1.1 million barrels a day from the end of 2018 to the end of 2019.
Perhaps the biggest problem for OPEC isn’t American shale but rising output elsewhere. Brazilian and Norwegian production is increasing, and will advance further in 2020. After several years of low prices, engineers have made many projects cheaper, and the results are clear.
Norway’s Johan Sverdrup oil field, the biggest development in decades in the North Sea, started up earlier this year, months ahead of schedule and several billions dollars under its original budget. And Guyana, a tiny country bordering Venezuela in Latin America, is about to pump oil for the first time.
“For OPEC, it remains a difficult first half of 2020,” Russell Hardy, Vitol’s chief executive officer, said in an interview. “U.S. production is growing strongly this quarter and in the first half of next year we’ll add non-OPEC production from Norway, Brazil and Guyana.”
The cartel knows well that it’s taking a gamble. The group’s own estimates show that if it continues pumping as much as it has done over the last couple of months — roughly 29.9 million barrels a day — it would supply about 200,000 barrels more crude daily than the market needs on average next year. The oversupply would be concentrated in the first half, when OPEC estimates it needs to pump just 29 million barrels a day to prevent oil stocks building up.
Iraq said on Sunday that OPEC and its allies will consider deeper production cuts, though the comments come after the coalition has widely signaled reluctance to take such action.
Other OPEC officials, speaking privately, believe the world’s supply and demand balance could be tighter than many expect — a big change from the past three years. They see non-OPEC output growth falling short of forecasts while global demand increases could be higher than expected.
“The market’s fear of a global recession has receded,” Vitol’s Hardy said. “There are problems here and there, but in general the music hasn’t stopped and demand didn’t follow the 2008 model” when it slumped amid the financial crisis.