OPEC re-looks for opportunities for production recovery

According to a report from World Petroleum in London on May 30, as Brent crude oil approaches $70 a barrel, for the first time in decades, oil companies are no longer eager to increase production to chase oil prices.

With Wall Street investors asking oil companies to reduce drilling expenses, returning more money to shareholders, and climate change activists opposing the use of fossil fuels, the oil industry is currently in a difficult situation.

The dramatic events in the oil industry last week only provided an opportunity for OPEC + oil-producing countries to give the alliance led by Saudi Arabia and Russia more leeway to restore its own production.

Shareholders asked ExxonMobil to reduce drilling and focus on returning funds to investors.

Exxon Mobil is not alone.

Bob McNally, president of the consulting firm Rapidan Energy Group and a former White House official, said: "We have seen that investments to increase oil production are turning from stigmatization to criminalization.

Although the oil production of non-OPEC+ oil-producing countries is indeed slowly recovering from the plunge in 2020 and the extreme downturn in April and May last year, it is still far from a full recovery.

After 2021, oil production in a few countries, including the United States, Brazil, Canada and Guyana, a new oil producer, may increase.

　　Executives and traders said that because non-OPEC+ oil production growth rate is lower than global oil demand, OPEC will control the market.

　　So far, non-OPEC+ oil production has not increased, which has not caused much repercussions in the market.

　　When this happens, it will largely depend on OPEC to fill this gap.

　　As a result, since July 2020, US crude oil production has been maintained at a level of about 11 million barrels per day.

　　Qiu Yin excerpted from World Petroleum

　　The original text is as follows:

　　OPEC finds a rare opportunity as Wall Street, green activists hinder competition

　　For the first time in decades, oil companies aren't rushing to increase production to chase rising oil prices as Brent crude approaches $70.

　　The oil industry is on the ropes, constrained by Wall Street investors demanding that companies spend less on drilling and instead return more money to shareholders, and climate change activists pushing against fossil fuels.

　　The dramatic events in the industry last week only add to what is emerging as an opportunity for the producers of OPEC+, giving the coalition led by Saudi Arabia and Russia more room for maneuver to bring back their own production.

　　Shareholders are asking Exxon to drill less and focus on returning money to investors.

　　Exxon is unlikely to be alone.
Royal Dutch Shell Plc lost a landmark legal battle last week when a Dutch court told it to cut emissions significantly by 2030 - something that would require less oil production.
Many in the industry fear a wave of lawsuits elsewhere , with western oil majors more immediate targets than the state-owned oil companies that make up much of OPEC production.

　　"We see a shift from stigmatization toward criminalization of investing in higher oil production," said Bob McNally, president of consultant Rapidan Energy Group and a former White House official.

　　While it's true that non-OPEC+ output is creeping back from the crash of 2020 - and the ultra-depressed levels of April and May last year - it's far from a full recovery.
Overall, non-OPEC+ output will grow this year by 620,000 barrels a day, less than half the 1.
3 million barrels a day it fell in 2020.
The supply growth forecast through the rest of this year “comes nowhere close to matching” the expected increase in demand, according to the International Energy Agency.

　　Beyond 2021, oil output is likely to rise in a handful of nations, including the US, Brazil, Canada and new oil-producer Guyana.
But production will decline elsewhere, from the UK to Colombia, Malaysia and Argentina.

　　As non-OPEC+ production increases less than global oil demand, the cartel will be in control of the market, executives and traders said.
It's a major break with the past, when oil companies responded to higher prices by rushing to invest again, boosting non -OPEC output and leaving the ministers led by Saudi Arabia's Abdulaziz bin Salman with a much more difficult balancing act.

　　So far, the lack of non-OPEC+ oil production growth isn't registering much in the market.
After all, the coronavirus pandemic continues to constrain global oil demand.
It may be more noticeable later this year and into 2022.
By then, vaccination campaigns against Covid-19 are likely to be bearing fruit, and the world will need more oil.

　　When that happens, it will be largely up to OPEC to plug the gap.
One signal of how the recovery will be different this time is the US drilling count: It is gradually increasing, but the recovery is slower than it was after the last big oil price crash in 2008-09.
Shale companies are sticking to their commitment to return more money to shareholders via dividends.
While before the pandemic shale companies re-used 70-90% of their cash flow into further drilling, they are now keeping that metric at around 50%.

　　The result is that US crude production has flat-lined at around 11 million barrels a day since July 2020.
Outside the US and Canada, the outlook is even more somber: at the end of April, the ex-North America oil rig count stood at 523, lower than it was a year ago, and nearly 40% below the same month two years earlier, according to data from Baker Hughes Co.