Canada’s oil output likely to rise but non-OPEC supply to drop

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OTTAWA: Overall oil supply from non-OPEC countries could be headed for the biggest drop in more than two decades due to lower prices, but Canada’s output is expected to rise, the International Energy Agency said in a report.
The report was released as oil prices tumbled, capping a weekly decline, after Goldman Sachs Group said the current global supply surplus could force prices as low as $20 a barrel.
The IEA said total output from outside the Organization of Petroleum Exporting Countries remains on track to rise to 58.1 million barrels per day this year, but then drop by about half-a-million barrels per day in 2016.
“If it materializes, the decline in output would be the largest since 1992 — and the collapse of the former Soviet Union — when non-OPEC supplies contracted by (one million barrels per day) from the previous year,” the report said.
The agency said “light tight oil supply” in the United States — hard-to-extract sources of high-quality light crude in shale rock formations — could sink by 400,000 bpd next year due to reduced drilling and completion rates.
The IEA also estimated that at $45 (U.S.) per barrel for oil, there would be 930,000 bpd of non-OPEC production that’s “at risk” of being shut in.
At $50 (U.S.) per barrel, which is above recent futures prices, the risk of shut-in production would drop to 400,000 bpd — of which 250,000 is in the United States and Canada, IEA estimates.
“Despite the latest oil price rout, Albertan heavy oil supplies are nevertheless rising from the start-up of new projects long in the planning,” the report said.
The IEA forecasts Canadian oil output will average 4.46 million bpd in 2016, up from 4.31 bpd in 2015 and 4.27 bpd in 2014.
By contrast, U.S. production is expected to drop to 12.53 million in 2016 from 12.72 in 2015. At that level, next year’s U.S. production would still be above 11.96 million bpd in 2014.
The IEA adds the decline in crude oil supply would also be partially offset by higher production of biofuels forecast for Brazil and the United States.
Goldman Sachs said the world’s oil glut is bigger than it had thought, as oil has fluctuated since slumping below $40 a barrel three weeks ago as concern over slowing growth in China fueled volatility in global markets. A U.S. Senate vote paved the way for President Barack Obama to ease financial penalties for doing business with Iran, which would allow an increase in the nation’s oil exports.
“The news out there is negative,” says Michael Hiley, head of energy trading at New York-based LPS Partners. “We are stepping closer to the Iranian deal. OPEC is pretty much saying that they are not going to change their production. The market is trying to find a trading range.”
While it’s not Goldman Sachs’s base-case scenario, a failure to reduce production fast enough may require Brent prices to fall near $20 a barrel to clear the world’s oil oversupply, the bank said in a report Friday.
“The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016,” Goldman analysts including Damien Courvalin wrote in the report. “We continue to view U.S. shale as the likely near-term source of supply adjustment.”