ANS leaps on stockpile drawdown, OPEC forecasts increased demand
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Alaska North Slope crude vaulted $2.57 to close at $66.26 April 14, while Brent jumped $2.91 to $66.59, and West Texas Intermediate popped $2.97 to close at $63.15.
After a string of docile trading days with movement counted in pennies per day, trading went ballistic April 14 on news from the U.S. Energy Information Administration that U.S. crude inventories had fallen to levels not seen since February, after the largest drawdown in two months.
The Organization of the Petroleum Exporting Countries added fire to optimism on the demand side, sweetening its outlook for 2021 economic activity and oil demand in its Monthly Oil Market Report released April 13.
The cartel lifted its 2021 global oil demand forecast by 100,000 barrels per day while lifting its global economic growth forecast to 5.4%, an increase of 0.3%. Global oil demand is expected to average about 96.5 million bpd in 2021.
“Additional U.S. stimulus measures and an accelerating recovery in Asian economies are expected to continue supporting the global economic growth forecast,” OPEC said. “However, this forecast remains clouded by uncertainties, including, but not limited to, the spread of COVID-19 variants and the speed of the vaccine rollout.”
“Sovereign debt levels in many regions, inflationary pressures, and central bank responses are key factors to monitor,” OPEC said.
OPEC said the second half of the year looks better than previously expected as the pace of COVID-19 vaccinations stepped up, largely in wealthy nations, contributing to an easing of lockdown measures and travel restrictions.
The cartel expects U.S. economic growth in 2021 to reach 5.7%, while the GDP growth forecast for the Euro-zone in 2021 remains at 4.3% and Japan’s GDP growth forecast remains at 3.1%. China’s GDP is forecast to increase by 8.4% in 2021, and India’s 2021 GDP growth forecast was revised up to 9.8%. Brazil’s growth forecast stands unchanged at 3.0%, while Russia’s growth forecast for 2021 also remains at 3%.
On the supply side, Non-OPEC liquids supply for 2021 was revised down by 0.03 million bpd from March and is now forecast to grow by 0.9 million bpd to an average of 63.8 million bpd, OPEC said.
Higher prices could potentially translate into a higher level of U.S. production in 2021, as the drilling and completion trend portends future robust monthly growth, OPEC said. However, the U.S. liquids supply forecast in 2021 is expected to continue at growth of 0.16 million bpd year over year. The other main drivers of 2021 supply growth in 2021 are expected to be Canada, Norway and Brazil.
OPEC crude oil production in March increased by 0.20 million bpd, month over month, to average 25.04 million bpd, according to secondary sources.
In the United States, data for Q1 2021 showed that total gasoline consumption losses are smaller than previous months, implying that the impact of COVID-19 on gasoline demand is fading, but data for jet fuel consumption remains far below normal levels, OPEC said, adding that the easing of restrictions and the traditional summer driving season should lift global gasoline requirements further.
Global oil demand for gasoline and diesel shows a marked improvement in gasoline demand versus 2020, but summer consumption isn’t expected to surpass 2019 levels due to pandemic-related challenges, OPEC said. On the other hand, diesel consumption is projected to be driven by sizeable stimulus programs in many economies, most notably the U.S.
The programs are expected to encourage growth in industry and infrastructure, particularly in Asian economies, including construction of buildings and roads along with increased demand for agricultural products, the cartel said. Nonetheless, diesel consumption is projected to remain under pre-COVID-19 levels for the entire year.
North American fracking recoversFracking in North America has recovered to near pre-pandemic levels, with the count of started frac jobs hitting a 12-month high in March, according to a Rystad Energy report. Completed wells in the Permian basin during Q1 2021 exceeded the required output maintenance level, signaling that oil production will rise in the current quarter but will likely fall again later in the year.
Rystad said it estimates 1,064 frac operations for March, exceeding the January activity level by 6.5%.
Most major basins will achieve production maintenance in the second quarter of the year, even some sequential production growth, Rystad said. The exceptions are the Bakken and Anadarko, where operators may struggle to cope with the base decline this quarter.
“The Permian was disproportionally hit by the Texas winter crisis in February and activity in the region grew significantly in March. We have already detected 429 started frac operations in March, while February 2021 ended up at 260 wells,” said Artem Abramov, Rystad head of shale research. “Permian oil production maintenance currently requires about 300 unconventional well completions per month, so the basin is set for production growth already in the second quarter.”
But frac rates are trending downwards from March, with the two-week average frac count down from over 100 mid-March to 65 currently - which is below the production maintenance level, Rystad said, adding that if the trend continues, the Permian production recovery in the second quarter might not be long-lasting.
Despite the significant recovery in frac activity, Rystad said it has seen structural declines in gas flaring since early in Q1 2020.
“This trend emphasizes the industry’s commitment to gradually eliminate routine flaring and develop tight oil resources in an environmentally responsible manner,” Rystad said.
- STEVE SUTHERLIN