Non-OPEC oil supply has seen a recovery in 2017 and 2018, following a contraction in 2016. This has been on the back of improving oil market conditions and rising oil prices, but it is evident that uncertainties remain as to the forecast pace of growth of non-OPEC supply for the remainder of the year. Non-OPEC oil supply grew by 0.87 mb/d in 2017, given higher crude oil prices with NYMEX WTI rising by $7.38, or 17%, y-o-y, to average $50.85/b. However, it is important to note that non-OPEC capital expenditure (CAPEX), including exploration, increased by only 2% y-o-y. Moreover, it has seen a decline of around 42% compared to the 2014 level. The outlier in this investment story is the US tight oil industry, which saw investment rise by more than 42% y-o-y in 2017, at about $138 billion, with 2H17 seeing greater expansion as crude oil prices continued to gain. Easy access to capital, cheap money and production hedging contributed to this trend. This helped US crude oil production surpass 10 mb/d in November 2017. In addition, US tight oil supply has benefitted from lower unit prices and more efficient operations. The estimated ultimate recovery rose on average by 20% for key tight oil plays from 3Q16 to 3Q17 and the average well cost per lateral length fell by a substantial 35% between 2014 and 2017. This has contributed to a drop in the average WTI breakeven price for US tight oil by as much as 40%.

On a country-specific basis, 86% of total non-OPEC supply growth in 2017 came from the US, followed by Canada, Kazakhstan and Brazil, while declines were seen in Mexico, China and the North Sea (Graph 1). Non-OPEC supply in 2018 is forecast to grow by 1.7 mb/d y-o-y, of which 89% is expected in the US, while Canada, Brazil, the UK and Kazakhstan are also anticipated to grow. US liquids production is estimated to increase by 1.5 mb/d, of which 94% is attributed to tight crude and unconventional NGLs due to increased investment and upgraded completion metrics. This compares to a share of 90% in 2017. According to preliminary supply data for 1Q18, the combined liquids supply in the US and Canada increased by 1.8 mb/d y-o-y. Over the same time frame, oil supply increased in Africa, Latin Graph 1: Non-OPEC supply changes in selected countries, 2014-2018 America, OECD Asia Pacific and the FSU, while production in OECD Europe, Other Asia and the Middle East declined. Globally, a total of 269 projects are anticipated to be approved in 2018, with 30 projects currently in FID – outside of tight oil – of which 54% will be onshore and 46% offshore, with Brazil showing the largest growth potential from new field start-ups. Increased tight oil production and a boost in output from Canada and Brazil is expected to further support non-OPEC supply towards the end of this year.

The performance of non-OPEC supply in 2018 will depend on many factors. The continued strong development of the world economy could lead to rising inflation, and, along with potential trade restrictions, would impact oil production costs. In addition, fast-growing US tight oil production is increasingly faced with costly logistical constraints in terms of outtake capacity from land-locked production sites. These producers are also being pressured by shareholders demanding capital discipline and a return on their investments, which could come at the expense of increased disposable CAPEX. Timely spending on project implementation is a key concern. Total non-OPEC spending in 2018 is forecast to increase by 3.5% y-o-y, and then increase Graph 2: Non-OPEC’s spending and CAPEX, 2014-2019 by 8.1% y-o-y in 2019. Global investment in shale – mostly in the US – is projected to increase by 20% y-o-y in 2018 and then moderate to 16% in 2019 (Graph 2). It should also be noted that geopolitical developments will also continue to impact global oil supply developments in the months ahead. Despite the large uncertainties prevailing in key market fundamentals, OPEC, as always, stands ready to support oil market stability, together with non-OPEC oil producing nations participating in the ‘Declaration of Cooperation’.
Source: OPEC