IEA and IHS Markit Oil and Shale Reports

IEA put out a report for the month of December. I don't have access to that report, but there is a summary version.

1. They estimate that global oil demand increased by 900 kb/d versus prior year; near 75% of the increase occurred in China while India saw an increase of 135 kb/d. They see 2019 demand increasing by 1.1 mb/d and 2020 demand increasing by 1.2 mb/d.

2. Even with demand still growing by over 1 mb/d, IEA still sees an over-supply of oil as they see "2020 non-OPEC supply growth to 2.1 mb/d, global oil inventories could build by 0.7 mb/d in 1Q20."

3. If I'm reading the details correctly, OPEC + is aiming to reduction production by 0.5 mb/d from current levels. So if OPEC + is -0.5 mb/d, but non-OPEC is +2.1 mb/d then it looks like oil supply will increase by 1.6 mb/d?  That supply growth does appear to be higher than demand growth.



IHS Market has a negative outlook when it comes to shale oil growth, however:

Data from the new IHS Markit Automated Well Forecasting Technology showed that the base decline rate of the more than 150,000 producing oil and gas wells in the Permian Basin has “increased dramatically” since 2010 . . . “Base decline” is calculated by identifying the actual or forecasted production of all the wells onstream at the start of the year, then tracking their cumulative decline by the end of the year.

. . . The new IHS Markit production outlook expects total U.S. oil production growth to flatten by 2021 due to a major slowdown in growth from U.S. shale. The new IHS Markit outlook for oil market fundamentals for 2019-2021 expects total U.S. production growth to be 440,000 barrels per day in 2020 before essentially flattening out in 2021. Modest growth is expected to resume in 2022.

. . . In 2019 Permian Basin production started the year at 3.8 million barrels per day, a million barrels per day higher than the year before. IHS Markit expects that base production will decline by approximately 1.5 million barrels of oil per day by the end of 2019–a staggering 40% base decline rate. 

If I am understanding things correctly, Base decline takes all wells into account. So this isn't just new wells within a specific year. What is interesting here is that IHS is saying that U.S. production growth will be 440,000 b/d in 2020. What does IEA have to say about 2020? Well, the summary version doesn't give a number other than that non-OPEC supply will increase by +2.1 mb/d. However, in a prior blog post, I did have this quote from Bloomberg via MSN:

What’s ticking folks off these days is how the International Energy Agency in Paris and the Energy Information Administration in Washington still predict robust U.S. production growth next year, despite the dire reality on the ground. The IEA expects an increase of 900,000 barrels a day, while the EIA forecasts 1 million, which would mean practically replicating this year’s expansion. 

So IHS shale forecast growth is 460,000 less than IEA. Let's say IHS is correct, then the IEA 1Q20 over-supply of 0.7 mb/d might be too high. As mentioned before, shale forecast growth are based on the average of the full year so year-over-year growth could be higher at the start of the year and then begin to decline throughout the rest of the year.

As a side note: what's the potential breakdown of IEA's non-OPEC supply increase of +2.1M mb/d?

We know US shale is 0.9 mb/d.
Per the New York Times, Brazil, Canada, Norway and Guyana will add around 1.0 mb/d.
Other countries would be adding 0.2 mb/d.

The New York Times adds that those same four countries will add another 1.0 mb/d in 2021.