The international oil market will usher in new opportunities for supply and demand improvement

In 2021, despite the general rise in profits and cash flow of international oil companies, oil and gas production did not rise
significantly during the year.
However, going into 2022, things may be different
.
Judging from the recently announced short- and medium-term budgets, the investment of international oil companies will show an upward trend
in 2022.
Coupled with OPEC+ maintaining its production increase policy unchanged and supply from non-OPEC countries recovering strongly, global oil production capacity will be further released, and the oil market is expected to gradually shift from tight to easing
.

The good performance boosted the investment of international oil companies

In 2021, with the improvement of the global epidemic and the recovery of demand, coupled with the slow release of production capacity in oil-producing countries, international oil prices rebounded from their lows, soaring from $50/barrel at the beginning of the year to a maximum of $85/barrel, a new high
in nearly seven years.
Although international oil prices fell in December, they remained at a high level
.
Overall, West Texas Light crude oil (WTI) rose by more than 55% in 2021, the largest annual increase in 12 years; The average price of Brent crude oil rose more than 50% for the year, the largest annual increase in five years
.

In the context of the rapid recovery of oil prices, most of the international oil companies have enjoyed the dividends
of soaring energy prices.
According to agency forecasts, ExxonMobil's full-year earnings will record an increase of nearly 48%; Chevron's revenue for the current fiscal year will increase by 66.
6%
from the previous fiscal year.
U.
S.
investment firm Zacks expects Shell's full-year earnings per share to reach $5.
02 and revenue to be $350.
18 billion, up 304.
84% and 91.
15%
year-on-year, respectively.
Meanwhile, Zacks' 2021 EPS forecast for BP is up 324.
9%
year-over-year.
Total Energy's adjusted net profit in the first three quarters of 2021 more than tripled year-on-year, and according to Jefferies analysts, its fourth-quarter earnings will increase
significantly.

According to historical experience, the development of the oil industry is cyclical, and the decisive impact of oil prices will lead to corresponding changes in investment behavior, but the changes in the latter lag slightly behind the former
.
Therefore, despite the general rise in profits and cash flow of major international oil companies in 2021, oil and gas production did not rise
significantly during the year.
Conversely, most companies' oil and gas production continued to decline
compared to 2019 and 2020.
However, going into 2022, things may be different
.
Judging from the recently announced short- and medium-term budgets, the investment of major international oil companies will show an upward trend
this year.

ExxonMobil, Chevron, Shell, BP and Total Energy will add at least $12 billion in capital spending projects
in 2022, according to Oil Price Network.
Chevron said it plans to set its capital and exploration spending budget for fiscal 2022 at $15 billion, more than 20 percent higher than
expected in 2021.
In the upstream business, Chevron will allocate $8 billion for current production assets, including $3 billion for unconventional development
in the Permian Basin.
ExxonMobil said the optimistic outlook has allowed it to extend planned spending of $20 billion to $25 billion a year on new projects until 2027, while saying that 60 percent of the company's spending will be spent on key growth areas
such as U.
S.
shale, Guyana and Brazil.

High oil prices drove U.
S.
production higher

Since the fourth quarter of 2021, global crude oil supply has further slowly recovered stimulated by high oil prices, and US shale oil production has also rebounded
.
U.
S.
oil production rose 200,000 b/d to 11.
8 million b/d in the week of Dec.
24, the highest
since May 2020, according to the U.
S.
Energy Information Administration (EIA).

At the same time, relevant analysts believe that US oil production will usher in greater growth space
in 2022.
According to a new survey released by the Dallas Fed on December 29, 2021, U.
S.
oil and gas industry executives believe that U.
S.
oil and gas production and drilling activity will increase next year due to rising oil prices, and nearly 50% of companies have listed production growth as a top priority
in 2022.
The EIA expects U.
S.
crude oil production to average 11.
85 million b/d in 2022 and rise to 12.
1 million b/d by the fourth quarter of 2022, up from 11.
28 million b/d in 2020 and 11.
18 million b/d
in 2021.

Wood Mackenzie and IHS Markit are similar, with the former expecting stronger overall U.
S.
production growth in 48 native states in 2022
.
Daniel Yergin, vice chairman of Essen Huamai, said U.
S.
oil production has recovered and will increase
further in 2022.

In the upcoming production cycle in the United States, the Permian Basin real estate area will lead the increase
in production.
Attracted by lower production costs, most producers are focusing their U.
S.
expansion plans on the region
.
Wood Mackenzie believes that in 2022, big oil companies will be more active
in the Permian Basin real estate area than smaller competitors.
Chevron plans to invest $3 billion in the basin in 2022, 50 percent more than its 2021 budget and about one-fifth
of its total global investment.
More than 40 percent of ExxonMobil's net U.
S.
production is located in the Permian Basin, which produces an average of 500,000 barrels of
oil equivalent per day.
This figure is growing further, and the company plans to increase its production in the Permian Basin to 1 million barrels of oil equivalent per day by 2024, almost one-fifth
of the Permian Basin's projected total production.

However, some analysts believe that shale oil-based US producers will still take stable cash flow and protecting the interests of capital market investors as the key
to future development in 2022.
The priority is therefore to return cash to investors rather than significantly increase drilling activity
.
However, Fitch analysts noted: "Oil and gas production has moved higher despite the reservations of independent listed companies in the shale industry about significantly increasing investment
.
" In addition, data from RichFirm Energy also shows that capital spending by U.
S.
shale producers will increase by nearly 20% to $83.
4 billion by 2022, the highest level
since the pandemic.

Supply growth has led to the gradual repair of the supply and demand structure

Although there are still many uncertainties in the recovery of supply and demand in the oil market in 2022, "based on the impact of the epidemic will gradually decrease, oil demand will return to pre-epidemic levels" has become a common expectation
in the market.
OPEC Secretary-General Barkindu recently said that total world oil demand is expected to reach 106 million barrels per day in 2022, exceeding the pre-epidemic level
.
Global oil demand will increase by 3.
3 million b/d in 2022 to pre-pandemic levels of 99.
5 million b/d
, according to the IEA's latest report.

With the growth of oil demand, in addition to the expected rise in US crude oil production, OPEC+ supply will also increase steadily, jointly helping the oil market supply and demand gradually shift from tight to loose.

EIA data shows that global oil production will average 100.
93 million b/d in 2022, and the annual market will be in a state of surplus
.
AMB predicts that the global oil market could return to oversupply
as early as the first quarter of 2022, given OPEC+ unchanged production increase policy and strong supply growth in non-OPEC countries.
The IEA also said that oil supply and demand will be more accommodative
in the first and second quarters of 2022.

The upcoming supply growth opportunity has been driven by a rebound
in global upstream oil and gas investment.
According to Wood Mackenzie, total global upstream investment will grow by 9% to more than
$400 billion in 2022.
This will be the first time since 2019 that total upstream spending has exceeded $400 billion
.

In global supply, OPEC+ is an important engine
for production growth.
According to the plan, the OPEC+ collective production reduction is expected to be zeroed
in September 2022.
Russian Deputy Prime Minister Alexander Novak said a few days ago that Russia's oil production will increase by 5% in 2022 to about 540 million tons or 550 million tons (up to 11.
045 million barrels per day), and reach pre-epidemic levels in May; Oman plans to increase oil production to more than 1 million barrels per day in 2022; The Libyan government is working to increase crude oil production to 1.
4 million barrels per day
by mid-2022.

In addition, total production in non-OPEC+ countries, including the United States, Canada and Brazil, is expected to increase by 1.
8 million b/d in 2022, reaching its highest level ever
.
According to the IEA's recent monthly report, if OPEC+ residual production cuts are completely lifted, coupled with the increase in crude oil production in the United States, Canada, Brazil and other countries, the average global crude oil supply will increase by 6.
4 million barrels per day in 2022, much higher than the increase of 1.
5 million barrels per day in 2021
.