2024 YTD has seen Brent oil prices average $81.2\/bbl, broadly in line with the 2023 average of $82.5\/bbl. Despite significant global turmoil in 2023, the global oil supply\/demand balance remains the primary driver for oil prices. In 2023, abundant non-OPEC+ supply, especially from the US, where growth of 8% was well above expectations at the start of the year, was countered by continued OPEC+ cuts. In addition, Saudi Arabia and Russia announced voluntary production cuts in 2023, pledging a combined voluntary output reduction of 1.5mmbpd. In 2024, this output reduction has been joined by six other OPEC members, leading to a total voluntary cut of 2.2mmbpd, which has now been extended through 2Q 2024.<\/p>\n
The length and impact of these output restrictions in 2024 will largely depend on demand, an area that is growing increasingly partisan. After overestimating 2022 oil demand growth in December 2021, the IEA and OPEC underestimated the scale of demand growth in 2023 in December 2022. The IEA predicted 1.7mmbpd of demand growth on 2022, while OPEC predicted 2.25mmbpd. By December 2023, the IEA had revised its estimated oil demand growth to 2.3mmbpd, a 35% increase from its December 2022 forecast, with OPEC at 2.46mmbpd, an uplift of 9%. The variance between the two outlooks is even more stark for 2024, with the IEA\u2019s January 2024 Oil Market Report forecasting demand growth of 1.24mmbpd in 2024, the third month in a row it has revised up its forecast, though it did reduce this to 1.2mmbpd in its February edition. Despite this, it remains 1mmbpd lower than OPEC\u2019s expectations of 2.25mmbpd, as reported in its January 2024 Monthly Oil Market Report, a growth figure it has stuck to in its February 2024 edition.<\/p>\n
Even in OPEC\u2019s optimistic demand outlook, one thing is clear \u2013 OPEC+\u2019s decision to continue its output reduction policy is likely to be the primary driver stopping oil supply from outweighing demand in 2024. The likelihood is that OPEC+ will stick to its output restriction policy to ensure that oil prices remain above Saudi\u2019s fiscal breakeven point of $80\/bbl. The economies of most members are still tied intrinsically to oil prices, including key Gulf States such as Saudi Arabia and Kuwait, who posted budget surplus\u2019 in 2022 when oil prices averaged $100.3\/bbl after nearly a decade of budget deficits.[\/vc_column_text][image_with_animation image_url=”16252″ image_size=”full” animation_type=”entrance” animation=”Fade In” hover_animation=”none” alignment=”” border_radius=”none” box_shadow=”none” image_loading=”default” max_width=”100%” max_width_mobile=”default”][vc_column_text]\n
In 2023, the number of wells drilled in the lower 48 was estimated at 12,300, continuing a trend of lower wells drilled since the 2015 oil price crash and well below an average of 32,470 wells per annum between 2010 and 2014. Despite this decline in drilling, the US reached never before seen production levels, peaking at 13mbbpd of crude before the Covid-19 price crash (November 2019), before setting a new record of 13.3mmbpd in December 2023, the fifth month in a row of >13mmbpd production.[\/vc_column_text][image_with_animation image_url=”16253″ image_size=”full” animation_type=”entrance” animation=”Fade In” hover_animation=”none” alignment=”” border_radius=”none” box_shadow=”none” image_loading=”default” max_width=”100%” max_width_mobile=”default”][vc_column_text]\n
Beyond 2024, the picture is more complex, as the growth rate in oil demand will underpin the actions of OPEC+ and non-OPEC member countries. Westwood anticipates significant drilling activity of over 38,500 wells per year to translate into an additional 4mmbpd from non-OPEC sources (including Brazil), with output declines in many countries outweighed by production additions elsewhere.[\/vc_column_text][image_with_animation image_url=”16254″ image_size=”full” animation_type=”entrance” animation=”Fade In” hover_animation=”none” alignment=”” border_radius=”none” box_shadow=”none” image_loading=”default” max_width=”100%” max_width_mobile=”default”][vc_column_text]\n
OPEC members also represent a major supply influx, given the significant investment many of them are making. Unlike Saudi Arabia, countries such as the UAE are moving forward with expansion plans and should hit their target of 5mmbpd by 2027. Even countries likely to struggle to hit their targets, such as Iraq and Nigeria, are expected to see an uplift in production given projects sanctioned or due to be sanctioned.<\/p>\n
Saudi Arabia is not excluded from this either, despite the delay of its plan to reach 13mmbpd MSC by 2027, which has seen planned output increases at Manifa and Safaniya deferred. The outlook for Saudi Arabia also points to a major supply increase \u2013 especially compared to liquids production of 11mmbpd recorded in 2023, with crude production of just 9.6mmbpd \u2013 well below its structural capacity potential. Major new fixed platform installation campaigns at fields such as Abu Safa and Zuluf are expected to continue, despite the announcement, while a new onshore drilling rig construction campaign is underway to help boost onshore activity levels. Non-crude liquids will see a major boost due to the start-up of onshore activity. The Jafurah project alone is anticipated to add 625kbpd of condensate and NGLs by 2030. At the same time, assuming the output cuts come to an end, crude production will increase.<\/p>\n
Overall, the picture for 2024 appears complex, with much of OPEC+’s production restriction efforts dependent on demand, given the flood of supply coming from non-OPEC+ sources. Beyond 2024, what is abundantly clear is that supply is in no danger of a shortfall. As a result, demand is likely to determine the trajectory of the oil industry over the next few years, with OPEC+ likely to continue output restrictions to maintain pricing at least above $70\/bbl if required. Saudi Arabia’s decision not to pursue 13mmbpd of production means that the market is likely to be more delicately poised than previously expected. Despite this, the additional capacity increases expected in Latin America, combined with quick barrels from the US, mean that any supply shortfall is unlikely to last long.[\/vc_column_text][vc_column_text]Ben Wilby,<\/strong> Senior Analyst \u2013 Onshore Energy Services<\/em> [vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right”…<\/p>\n","protected":false},"author":13,"featured_media":16257,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[353,731,327,346,48,444,344,404,49],"tags":[59,750,142,488,84,805,697,83,154],"class_list":{"0":"post-16155","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-all_articles","8":"category-ben-wilby","9":"category-global-land-rigs","10":"category-international-land-rigs","11":"category-news","12":"category-onshore-energy-services","13":"category-us-onshore-drilling","14":"category-wells-services-equipment","15":"category-westwood-insight","16":"tag-drilling","17":"tag-liquids","18":"tag-oil","19":"tag-onshore","20":"tag-opec","21":"tag-saudi-arabia","22":"tag-supply","23":"tag-us","24":"tag-wells"},"acf":[],"yoast_head":"\n
\nbwilby@westwoodenergy.com<\/a>[\/vc_column_text][divider line_type=”Small Line” line_alignment=”default” line_thickness=”2″ divider_color=”extra-color-1″][vc_column_text]Data is derived from Westwood\u2019s Wells & Production Outlook 2023-2030<\/strong><\/a>, which is a series of four regional reports covering onshore and offshore drilling and production outlooks for Africa & Europe, the Americas, Asia Pacific and the Middle East. Published bi-annually, they are available to purchase individually or as a bundle.[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” column_position=”default” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” animation_type=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][\/vc_column][\/vc_row]\n","protected":false},"excerpt":{"rendered":"