OPEC TO MEET ONE-THIRD OF RISE IN GLOBAL OIL DEMAND

With Non-members of the Organisation of the Petroleum Exporting Countries, OPEC, poised to grow again, OPEC will need to increase oil output by just 2.2 million barrels per day (b/d) to meet global incremental oil demand of about 5.5 million b/d over the 2017 and 2022 period. According to the latest Global Energy Weekly from Bank of America Merrill Lynch (BofAML) about one-third of global oil supply growth will come from OPEC in 2017 down to 2022. While OPEC countries have the resources to grow production, OPEC revenue would likely be higher if no additional investments are made compared to scenarios where increased OPEC production leads to lower prices.  For this reason OPEC oil output growth is likely to be limited over the next five years. According of BofAML, Saudi Arabia, UAE, Iraq and Iran are the only countries able to increase their output meaningfully in the medium term, while others such as Algeria, Nigeria or Venezuela would need massive investments to reverse current trends and boost output. “Saudi Arabia would likely be better off maintaining steady production and allowing prices to rise to maximize their long-term oil revenue,” the report said. The report also noted that over a 15-year period, Saudi total oil revenues at $50/bbl and 18mn b/d of production would equate to $4.90 trillion. Meanwhile, a combination of $65/bbl and 12 million b/d production would bring in $4.30 trillion. Yet, given production costs of $10-to-$20/bbl, it simply would not pay off for Saudi to aggressively invest in domestic oil productive capacity, even if assuming a zero discount rate on incremental future revenues.