Raymond James sees tighter oil market coming soon

[dan_s]

Ramond James: "Can Long-Lead-Time Oilfields Fill the Gap Left by Slow Shale Growth? After 2024, OPEC Matters Even More"

After U.S. oil production rose 8% to an all-time high of 19.4 million bpd (full-year average) in 2023 <includes NGLs, we forecast the rate of growth slowing to 3% in 2024 and barely above flat in 2025. Our readers surely need no reminders at this point about the capital discipline that has become the watchword across the North American shale industry. Having lost this traditional supply growth driver, the global oil market could struggle to rely upon long-lead-time oil projects to provide an effective substitute.

One year ago, we wrote: “the pace of project startups is unlikely to ever get back to its pre-COVID annual run-rate of around 2 million bpd.” We are even more confident of that following last week’s news that Saudi Aramco — which is set to be a key source of supply growth during 2025-2027 — is under directions from the government to return to a long-term production capacity target of 12 million bpd, versus the prior target of 13 million bpd.

This report, our annual update on the status of oil projects around the world, takes a look at the landscape for project development and highlights some notable ones. Summary view: We are not particularly concerned about longer-term supply in aggregate, as several areas have solid visibility: Guyana, Brazil, Kazakhstan, and Canada, to name several. That said, as demand growth continues and shale growth slows down, the power in the oil market will further shift into the hands of OPEC+, and that’s assuming no abrupt breakdowns in fragile production areas.

MY TAKE: Production growth from the Permian Basin will soon peak (12-18 months). Since the other major oil producing basins are already past peak, the U.S. will struggle to increase production much above 13.5 million bpd of crude oil. U.S. crude oil production will actually decline from Q4 2023 to Q1 2024 due in part by weather related well freeze offs. It is a False Paradigm that U.S. shale oil production has unlimited upside. It definitely cannot increase at today's active drilling rig count. Much higher oil prices will be needed to encourage more drilling activity.