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Crude Deficits Offer Operators Opportunity in 2021: Rystad Energy

By MBN Staff | Wed, 12/23/2020 - 13:20

A study by Rystad Energy predicts that the crude oil deficit forecast during 2H21 will provide operators with a “window of opportunity” as global vaccination campaigns kick in and demand quickly outstrips supply.

“Although crude and condensate supply will still exceed demand in the first quarter of 2021, Rystad Energy expects that vaccination campaigns will help bring a rapid recovery going forward,” says the report. “Monthly supply deficits will start from May, reaching a high of around 3.4 million barrels per day in August. As deficits continue uninterrupted through the year, August’s high could be repeated, if not exceeded by year-end,” it adds.

The demand devastation seen earlier this year forced operators to cut their production in an attempt to stabilize oil prices and to ensure a slim margin of profitability. OPEC+’s historic 9.7MMb/d production cut agreement helped return prices to the over US$40 mark, while companies also independently decided to reduce their output. But constant outbreaks of COVID-19 across the globe have stunted the rise of oil prices further and compelled operators to keep their outlook depressed.

The Norwegian energy consultancy believes that January’s market will be balanced with a supply and demand of 77.7MMb/d and 77.8MMb/d respectively. But lockdowns imposed over Christmas and new fears of a more contagious strain forcing other leaders to consider restricting movement will mean demand stays at the same level in February and March. The market will recovery after April, says Rystad.

It is important to highlight that our current supply base case assumes the terms of the latest OPEC+ agreement stay unchanged and the group’s production remains flat after January,” the report noted. “However, with the balances entering a period of acute deficit already in the second quarter of 2021, an upward revision to supply might be around the corner.”

The study accepts that  various unknowns could change levels of oil production, including the unsettling political effect of a US administration change. However, 2021 should be brighter for beleaguered operators.

The past year has been torrid for companies across the oil and gas industry. When demand tanked after COVID-19 arrived and mobility restrictions were enforced, operators delayed, suspended and cancelled projects, while some even shut in wells. Budgets were reduced and those reliant on operator activities, like Diamond Offshore, filed for bankruptcy while the big oilfield service companies including Halliburton and Baker Hughes cut thousands of jobs.

According to US law firm Haynes and Boon, 45 North American oil producers filed for bankruptcy between January and November this year.

In Mexico, the demand drop forced PEMEX to shut in wells as Mexico joined OPEC+’s output cut. Operators including Murphy Oil were forced to suspend their activities as budget cuts forced a rethink.

Gregory F. Hebertson, Vice President of Global Exploration at Murphy Oil told MBN in June that its planned drilling campaign on the company’s promising deepwater Cholula discovery would be delayed until late 2021.

The fact that we have chosen to delay our program has nothing to do with our interest in Mexico. It has everything to do with the fact that we are trying to manage our business through a difficult period,” he said.

Photo by:   Chumlee10, Flickr
MBN Staff MBN Staff MBN staff