OPEC control of oil prices is waning. OPEC in its recent meeting has decided to keep the production of crude oil from its oil producing regions unchanged. The revenues would decrease for the organization as they have kept the production at the same levels as in the current scenario due to which oil prices are expected to reduce drastically on account of a global demand supply mismatch with non-OPEC countries registering a rise in supply. For the oil industry, a significant production cut by OPEC would have lifted prices and profits across the board and helped finance further U.S. energy innovation. U.S. producers already are responding to lower oil prices by adjusting their spending to focus on cheaper wells with higher production. As a result this scenario would not curtail U.S. output, which is expected to hold at current levels even if prices drop to USD 70 per barrel. The decision to maintain production by OPEC would now trigger a competition among oil producers to maintain market share. This competition to maintain market share is expected to drastically reduce the price of crude oil in the international market.
Brent Crude oil prices have fallen from a high of USD 116 per barrel to a low of USD 72 per barrel on account of rising supply from the non-OPEC countries and it is expected that this supply glut is expected to continue in the near term that would keep crude oil prices in check. Price lower than USD 60 per barrel would prove disastrous for countries such as Equatorial Guinea, Chad, Venezuela, Angola and Iran that are dependent on oil revenues to survive. To offset the impact of the U.S. shale boom, OPEC’s leading producer, Saudi Arabia should have taken a very substantial cut in supply to maintain prices, which they have not done.
There are various sources of oil in the international market. Shale Oil or Tight oil (abbreviated LTO) is petroleum that consists of light crude oil contained in petroleum-bearing formations of low permeability, often shale or tight sandstone. Natural gas liquids (NGLs) are hydrocarbons—in the same family of molecules as natural gas and crude oil, composed exclusively of carbon and hydrogen. Oil Sands contain sand and rock material which has crude bitumen (a heavy, viscous form of crude oil). Oil sands are found primarily in the Athabasca region of northern Alberta, Canada, and in areas of Venezuela. Crude Oil can be defined as a naturally occurring, unrefined petroleum product composed of hydrocarbon deposits.
Organization of Petroleum Exporting Countries (OPEC) and non OPEC countries contribute to the supply of oil in the international market.
OPEC is a permanent, intergovernmental organization, established in Baghdad, Iraq, on 10–14 September 1960. The Organization comprises 12 Members: Algeria, Angola, Ecuador, the Islamic Republic of Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. The Organization has its headquarters in Vienna, Austria.
Countries such as Russia, United States, China, Mexico, Canada, Norway, and Brazil come in this category.
DEMAND SCENARIO FOR OIL
The medium-term oil demand for the period 2013–2019 is expected to increase by an average of 1.0 mb/d annually, reaching 96.0 mb/d by 2019. Over this period, demand in all Organization for Economic Cooperation and Development (OECD) regions is expected to fall with OECD aggregate demand having peaked in 2005, down to 45.2 mb/d in 2019 from 45.9 in 2013. Demand in Russia and other Eurasia is expected to increase slowly. The key to demand increase is clearly from developing countries, with an annual rise of 1.1 mb/d. On an annual basis, by 2015, non-OECD oil demand will be greater than OECD oil demand for the first time. Indeed, this is expected to have already occurred in the second half of 2014. Demand levels in the medium-term have risen due to upward revisions in the base years.
SUPPLY SCENARIO FOR OIL
On the supply side, the primary driver of recent non-OPEC output growth has been the US & Canada. Most of the recent increases have been due to oil from tight crude and unconventional natural gas liquids (NGLs), as well as oil sands developments. Some increases have been observed in Russia and China, but most other non-OPEC regions have seen declines. This has been mainly in OECD Europe (as output declined due to unplanned shutdowns, maintenance and decline from mature areas in the North Sea) and non-OPEC Middle East and Africa.
The rise in tight crude and unconventional NGLs supply in OECD America will dominate the medium-term non-OPEC supply volume increases. The current expectation is for a rise in tight crude of 1.5 mb/d by 2019, from 2.8 mb/d in 2013 to 4.4 mb/d by 2019. On top of this, many regions are expected to register supply increases, primarily crude oil from Latin America (mainly Brazil and Columbia), Middle East & Africa, the Caspian (Kazakhstan’s Kashagan oil field should add to robust growth) and Russia, together with some increases in biofuels supply, mainly from Brazil and Europe. These increases compensate for expected declines in OECD Europe oil supply (North Sea) and Mexico. Over the period 2013–2019, total non-OPEC supply increases steadily, rising by 6.4 mb/d over these six years from 54.2 mb/d in 2013 to 60.6 mb/d in 2019. The amount of OPEC crude required will fall from just over 30 mb/d in 2013 to 28.2 mb/d in 2017, and will start to rise again in 2018. By 2019, OPEC crude supply, at 28.7 mb/d, is still lower than in 2013.
US tight crude supply is expected to peak in the last years of this decade. Most of this supply is assumed to come from North America, although there is some tight crude from Russia and Argentina, which combined reaches 0.7 mb/d by 2040. Despite the eventual decline in tight crude and unconventional NGLs supply in the mid-2020s in OECD America, total supply from the US & Canada is expected to continue to rise to a plateau of 20.8 mb/d in 2030, due to the rise in oil sands and biofuels supply. The main long-term increases in supply come from Latin America and the Caspian. Declines are expected in mature regions, in particular OECD Europe and Mexico, but also in Asia. Chinese supply appears to be particularly constrained by limited resources.